Starting a Business – What you need to know
Starting a business is a major challenge. It is a life changing and stressful experience that requires careful consideration. Many people start their own business from a desire to be their own boss and to obtain full financial reward for their efforts. Once self employed many of the benefits of being someone else’s employee are lost including certainty of income, in both quantity and regularity, holidays and regular hours. However if successful, it can be highly rewarding both physiologically and financially. The first step in starting your own business is having an idea and finding out all you can about it. Spend time on your idea and carry out research to determine if there is a market for your product. You need to assess if you have the necessary skills to be a successful entrepreneur – are you willing to work long hours, have you good communication and leadership skills, are you a risk taker, do you have any business experience? Time spent in making the decision and thinking through your plans will minimise the risk of failure. In addition there are a number of practical points, which are summarised below, which require consideration before trading begins:
Legal Framework One of the first major decisions you will have to make as you start your new business is the form of legal entity it will take. There are three basic forms, sole trader, partnership and limited company and which is chosen may be dictated by the way you have organised your operations, and whether you intend to work on your own or with others. Each has its own benefits and drawbacks and it is treated differently for legal and tax purposes. It is important that you make yourself fully aware of the requirements of each form of entity and identify which is best suited to your venture.
Registering with Tax Authorities A significant task for the new business owners is assuring that the business is compliant with the extensive tax and information filing requirements imposed by various authorities. Problems and penalties could arise if the new business is not registered with the appropriate tax authorities in a timely fashion. It is necessary to notify the Revenue Commissioners of your existence as soon as possible by completing a TR2 (limited company) or TR1 (sole traders/partnerships), which can be used to register for various tax heads including income tax (sole traders/partnership), corporation tax (company), employers PAYE/PRSI and VAT.
Financial records One of the greatest mistakes made by owners of a small business is not keeping good financial records. As the owner of a business you must remember that your company’s books and financial statements represent a score sheet which tells you how you are progressing, as well as an early warning system which lets you know when and why the business may be going amiss. The necessity for good, well organised financial records cannot be over-emphasised, especially as these financial records will provide the basis for many decisions made by outsiders such as banks, potential investors etc. Quality financial information does not necessarily translate into complicated bookkeeping or accounting systems. The system should be sophisticated enough to
Gilroy Gannon, Chartered Accountants, Stephen Street, Sligo, Ireland Tel: +353 71 91 61747 : Fax: +353 71 91 43283 : E: info@gilroygannon.com
Starting a Business – What you need to know
provide the information you need to run your business and simple enough for you to run it. Many people look towards the number of very good, easy to use accounting software systems which are commercially available, but none will solve the problems of inaccurate or poor quality financial records. In order to get the most from your computer package it is imperative that you generate accurate information to be entered on the system, which will then allow you to produce accurate reports that can help you analyse your business and make it more profitable.
Cash Planning and Forecasting The life blood of any business is its ability to collect cash and pay bills as well as pay its employees, particularly its owners. Far too often small businesses are profitable but do not have enough working capital to meet their current needs, which can ultimately lead to the company going out of business. The preparation of projections is the key. This should forecast the volume of sales which will be generated over a specific period of time together with related costs. When preparing projections you should be realistic and should take into account considerations such as seasonality of your business, the market for the product and also the relative state of the economy. Once you are satisfied with your forecasted sales you need to consider the cash receipts side of your business and the timing of the collection of funds from your sales. Will all sales be collected in cash or will credit be offered to customers? Where credit is offered, how soon will this cash be collected? The effective management of cash will result in funds being available to meet debts as they fall due.
Obtaining Credit & Finance for your Business At some stage in the development of your business you may need to obtain some outside capital. Generally business financing can take two forms, debt or equity. Debt, of course, means borrowing money and the following are examples of debt financing sources: Banks - Loans from a bank can take several forms, an overdraft limit, a short term loan (repayable on specified dates) or a term loan for the purchase of specific assets such as machinery or equipment. Long term loans (3-5 years) may also be available. Leasing Finance – usually used to acquire assets and is usually somewhat more expensive than commercial bank loans as the leasing company will typically accept a somewhat higher degree of credit risk. Leases often run for a period of three to five years. Trade Credit – A very important source of finance for your company may be from your creditors and suppliers with whom you do business. Most suppliers will quickly establish trade credit with you once you have gained their confidence by continuing to do business with them and paying as requested. Equity finance usually means selling a portion of your business, which can be accomplished in a number of ways including sales of ordinary or preference shares. Equity sales are carefully tailored to meet the needs of both the company and investor. It is typically a prudent idea to consult with your accountant as there are many significant legal consequences to such a step.
Gilroy Gannon, Chartered Accountants, Stephen Street, Sligo, Ireland Tel: +353 71 91 61747 : Fax: +353 71 91 43283 : E: info@gilroygannon.com
Starting a Business – What you need to know
Insurance Another cost which needs to be considered when starting in business is insurance. Without proper insurance you could lose all of the money, time and effort you put into your business. Usually you will want to insure against risks which could have a detrimental impact on your business such as fire, storm damage, theft, general and product liability. Your accountant and insurance broker can help you review the amount of coverage you may wish to purchase for various purposes.
Selecting Professional Advisors Starting your own business entails a multitude of decisions, which can be overwhelming without proper advice. The right accountant and solicitor can eliminate a host of problems and potentially costly errors you might make as you build the financial foundation of your successful business. When enlisting the expertise of an accountant or solicitor you want a specialist who is suited to your specific needs and who will listen to you. More importantly, you need someone you can and will listen to as they devise strategies to help you succeed. Success in business depends on many factors, most importantly is the need to critically review all aspects of the business proposition before going too far. The support of family and friends is also essential as it is important that they understand that the administrative and financial requirements of running a business can be time consuming and stressful. Nonetheless it can be highly rewarding and if you want to succeed, you can, by taking the time to make key decisions and enlisting the right players on your team. For further information contact caroline.tighe@gilroygannon.com Caroline Tighe on 071 9161747 or at
Gilroy Gannon, Chartered Accountants, Stephen Street, Sligo, Ireland Tel: +353 71 91 61747 : Fax: +353 71 91 43283 : E: info@gilroygannon.com