Starting a new business can be an exciting and challenging time. If you want everything to go smoothly, you may want to be aware of some financial considerations for setting up your business. With this knowledge, you can approach your new business finances properly. 

This guide will discuss financial considerations for setting up your business, including:

  • Expenses and budgeting
  • Tax and legal requirements 
  • Financial organisation 

The budget and expenses of your new business 

One of the most important financial considerations for setting up your business is to ask yourself how much it will cost. 

Business expenses

Most businesses will come with startup costs, or the money you spend to get you up and running. These costs include one-time purchases like necessary equipment, tools, and registration fees. It could also include research, planning, and advertising or marketing. 

On top of the startup costs, there are also the operating expenses of your business, or money you need to spend to keep it running. These may include inventory costs, services and subscriptions, insurance, and shop rent. 

Preparation and saving

Calculating your startup costs and regular expenses will help you understand how much money you’ll need. It’s important to have the right cash to start your business because you won’t have revenue yet. 

You’ll need to give yourself time to save enough money for starting your business. Alternatively, you can look into funding options, such as loans or investors. If you want to take out a loan to start your business, this can speed up the process. But you will have to pay that loan back over time, which will decrease your early earnings. So, you’ll need to budget your money well to succeed. 

The right budget 

Creating a budget for starting your business will help you determine where to focus your finances for success. It’s also a legal requirement for businesses to budget and track their finances. But, a starting budget is critical to starting a business as it helps you determine how to spend your money with purpose. 

To build a starting budget, first look at your necessary expenses. Apart from startup costs and required expenses, you may want to budget for advertising and marketing expenses, travel expenses and incorporate savings for growth. Also, consider putting money aside from taxes when you earn revenue. 

Tax and legal requirements for setting up a business 

Other financial considerations for setting up a business are the legal requirements and logistics for tax regulations. 

Registering your business 

You’ll need to register your new business as a sole trader or a limited company. Your decision affects your tax requirements and regulations. 

As a sole trader, you’ll have fewer taxes and regulations, but you’ll be legally responsible for your business. Meanwhile, limited companies have more taxes and regulations but are separate legal entities. So, losses only affect the finances you put into the business.  

On top of this registration, your new business may require other licensing, registration, or training that you should account for.

Paying taxes

You’ll also have to manage and report your own business taxes to the HMRC and may need to submit a Self Assessment tax return. These taxes likely include income tax, dividend tax, and national insurance. 

If you register as a limited company, you’ll also need to pay corporation tax. Plus, if you expect to earn over £85,000 annually, you’ll have to register for VAT. 

VAT registered businesses are also legally required to comply with Making Tax Digital (MTD) processes. MTD is a government initiative to transition to digital tax record keeping and filing for better accuracy and ease. Eventually, MTD will expand as a requirement for many businesses, so it’s a good idea to know about it now and plan for the future. 

The best financial organisation for your new business

Another key financial consideration for setting up your business is organisation. Companies are legally required to do financial accounting and keep records for about six years. But good record keeping can also help you understand your performance and make better financial decisions. 

Business current account 

The first step in organising your finances well is separating them from your personal ones. This is important because it helps you stay on top of your business finances without personal transactions in the mix. As a result, you can be more aware of the money you spend and earn for your business and keep accurate records.   

Separate your business finances by opening a business current account, a bank account specifically for your business. If you register as a limited company, you’ll be legally obligated to open one, but either way, it’s a critical part of maintaining clear records for better accounting. 

Accounting software 

On top of a business current account, you’ll need accounting software to manage your finances well. Trusted by over 40,000 UK business owners, the Countingup app combines a business account with accounting software so you can easily manage all your financial data in one place. 

The app offers tools that help you manage your transactions, like automatic expense categorisation using HMRC approved categories. With this, you can track tax-deductible expenses and maintain updated records. Plus, Countingup offers a receipt capture tool that reminds you to snap a picture of your receipt as soon as you make a purchase. 

In addition, the app lets you create and send unlimited invoices on the go. Countingup will notify you when you receive an invoice and automatically match it to a payment. The app also generates cash flow insights so you can keep track of your business’s earnings and expenses. 

Countingup even provides ongoing tax estimates that let you plan. The app is also MTD compliant, helping to digitise your tax process. It automatically calculates VAT on each transaction and lets you share your bookkeeping with your accountant instantly without duplication errors, data lags or inaccuracies. Your accountant can then file with the free accounting software. Overall, the app lets you prepare for the future of taxes. Seamless, simple, and straightforward! 

With these features, you can save time on your financial management and confidently keep on top of your business finances wherever you are. 

Simplify your new business finances with Countingup

Financial management can be stressful and time-consuming when you’re self-employed. That’s why thousands of business owners use the Countingup app to make their financial admin easier. Rated ‘Excellent’ on TrustPilot, people consider it ‘fantastic.’ and ‘easy and fast.’ As a new business owner, try your first three months free. 

Find out more here.

Related Resources

Read more