Small business finances – with Wendy & Laughton Ross, Tonbridge Accountants

Welcome to the, Bring Your Product Ideas To Life podcast, practical

advice, and inspiration to help you create and sell your own physical products.

Here's your host Vicki Weinberg.

In today's episode, we're going to talk about finances for small business.

Um, couple of reasons I want to do this episode, really one is I think

it's an area that is personally myself as a small business owner.

This is probably the thing I knew least about and struggled most with.

So I'm really hoping this will be helpful.

Um, also as this week's guests, I say guests, we do have two of them point

out getting your finances, right and knowing what to do can be massively

helpful and avoid a lot of stress.

And, you know, in the short-term and in the long-term really, and also

this is something that people often ask me about, they'll say, well,

should I set it up as a sole trader?

Or should I set up as a limited company?

Um, I don't know those answers.

Um, and in fact, anything's of accounting wise.

I don't know, the answers really and my advice would always

be speak to an accountant.

But what I'm hoping is that today's episode will give you a bit of an

overview of what you need to do as a small business to manage your finances,

the kind of things you need to be keeping track of the absolute fundamentals.

And then of course, should you need more advice and support as I'm sure

you will, from time to time than what's covered in this episode, then you can

always go and speak to an accountant.

But I think this might be just a really good starting off.

So I'd like to introduce this week's guests, so that Laughton and Wendy

Ross and Laughton and Wendy are husband and wife team of chartered accountants

with over 30 years experience.

So they run Tonbridge Accountants and they want to share the wealth

of experience with like-minded entrepreneurs and ambitious business

owners supporting them to achieve their goals and grow their business.

They're passionate about using their skills and knowledge to take care

of the financial side of things so that you can focus on what you're

passionate about which is your business.

So after that introduction, I would now love to introduce you

to Laughton and Wendy and talk, all things finance and accounting.

Say hi to you, both.

And thank you for being here.

Hi Vicki, um, thank you for having us.

No problem.

Well, thank you for coming on and talking to me.

Um, so can you start by giving an introduction to yourselves

and your business please?

Yes.

Um, my name is Wendy and, um, I am the founder of this firm.

Um, a little bit of a background.

I used to work in the city with HSBC bank PLC.

I gave up my career to look after my kids and, um, I got bored not long after, so I

decided to set up my own accounting firm.

Um, it wasn't an easy decision for us given our background.

My husband is also a chartered accountant and he's on the call here a lot.

So I made us with proposal to him about setting up a firm together.

We have always been a big supporter of local businesses.

And from speaking to local businesses and friends, we spotted a gap in

the market where small businesses could really benefit from having

an access to a great accountant, helping them to grow their business.

Um, we focus on having a great working relationship with our clients

so we can work as a team closely.

So, yeah.

And hi Laughton as well.

Cause obviously you're here as well and I know we will hear

from you a little bit later.

Yeah.

Yeah.

That's great.

Um, and yeah, we were happy to answer your questions today.

Um, Wendy and I are going to uh, take those between us.

I'm more of the techie one Wendy's more of a people person.

So we'll, we'll share those out and hopefully cover everything.

Yeah.

Perfect.

Thank you.

Well, I'm just going to throw questions at you and then I'll leave

it up to you to who takes what?

So let's start right at the beginning with why do small businesses need in

accounting and a bookkeeping system?

Perhaps?

Actually we can talk a little bit about what those entail

and what the differences are.

And why is it important that they think about this right from the outset?

With respect, um, bookkeeping is a highly skilled

function when done properly.

Most clients will never be able to do their bookkeeping

at a standard we operate at.

And we quite often have, have had to clean up a lot of mistakes when

clients do their own bookkeeping.

Um, the most important thing that micro businesses can get wrong is not

bookkeeping, it is keeping records.

They need to be diligent in your record keeping that.

How many times have we asked, how is your records kept?

And quite often we get along costs from new clients and then followed

by what do you mean by that?

Um, it is, it is quite vital.

Um, I think bookkeeping sort of is probably a bit of a scary,

big word for most people.

Um, especially when you're businesses.

Um, and we try and simplify and break it down to, you know, it's really just

keeping tabs of your income and expenses.

So you basically, in a nutshell, you know, have a have a folder of all your receipts

and invoices and your bank statement.

Okay.

Perfect.

Thank you.

So it sounds like what you're saying is most important thing is

that you're keeping records of what goes in and out of your business.

Yes.

And I just want to add, like, for example, even if, uh, if the HMRC

officer decides to look at your accounts and see your records are incomplete,

how are you going to persuade HMRC that you didn't make that money?

So, um, you know, the advice is you need to get a receipt for

everything and write everything down.

Okay.

So it sounds like right from the start, the important thing is that

you keep track of what you spend, you keep track of what comes in.

Um, and how, how would you do that?

Or what are some options for how to do that?

I mean, is it okay just to have a folder full of receipts, or should

you be logging this somewhere?

What would you recommend?

Well, let's take a typical small business or new business because I

think the complexity of your bookkeeping really, it depends on the size of

your your outfit, what you're doing.

Um, it's just one person and you're doing something straightforward.

Your record keeping is going to be a lot more simple than a huge big

organization with a dozen employees.

You know, something like that.

So, You can really start off, you know, in the simplest terms, just

with a manual set of records and keep all it, keep all the bills, keep all

the invoices, write everything down.

Um, you know, that that's, if you've got quite a small number of transactions,

but that might be suitable for you, um, as you grow and you've got more passing

through the business, you're going to find that that's a, you know, time intensive

to, to complete that so you might want to look into a spreadsheet, possibly some

software, a simple Excel workbook might be fine for, you know, growing business.

As you, as you get a few more transactions in, you might want to have accounting

software to deal with it for you.

Just pick a system that's going to save you time.

Now, you want to spend the time growing your business, developing new

business, dealing with your customers and not updating spreadsheets all day.

So the software can really can really speed up some of that bookkeeping.

Yeah, that makes sense.

Thank you.

And I know we're jumping around a bit in terms of what we're talking about,

but I think that leads on nicely to, so I know that, bookkeeping, as you

mentioned, Wendy is quite a skill and it can be quite time consuming.

So is it possible for small businesses, particularly when they

start out to do their own accounting?

Um, I know that ideally, you know, maybe you would work with an accountant, but is

it something you feel that people can do?

And if so, what are some of the options for things like software

that might help out a little bit.

I think this, I think this is quite a, it's a little bit tricky

question because, um, you know, you can, you can absolutely do your um,

accounting or your bookkeeping, if you know what you're doing, um, you

know that there, a lot of people have different expertise or knowledge.

So, um, we have, we have clients who, uh, to do their own bookkeeping and as well

as we have clients who are completely uncomfortable, when you talk about, you

know, keeping invoices or receipts, um, I think for, for, for our clients, If

their business is simple and very small, they can use an Excel spreadsheet to

keep tab of their income and expenses.

Um, but most of our clients use an accounting software.

We work with Xero and, um, it, it's a great, it's a great tool.

Uh, but then again, um, it's quite important for us to be able to, uh,

I think for clients, we use Xero.

We have, we have, um, an overview where we shared, um, we can actually

see what they're trying to do, and if they, if they struggle with any,

um, transaction or anything in Xero, where we are able to, um, go in and

support, um, and you know, correct, correct the errors, if there's any.

Just to add to that Wendy the, you know, the software

these days is great, it's all, cloud-based, it's really easy to use.

It's really user friendly.

Um, but the guys who designed it do such a great job with their marketing.

They have everyone convinced that the software does everything for you.

Um, and it really doesn't, you kind of, you need to understand what it's doing,

how it's working in the background.

Um, and also that, what it produces is only as good as what you put into it.

So if you don't know what you're feeding in when you're doing that and

why you're doing it, you're not going to get a reliable data out of it.

So that's, that's something we spend time with people on just

explaining how it works and getting them into a little routine.

I think with a lot of this stuff, once you're in a routine with it,

you know, as long as nothing changes, you can progress quite nicely and be

comfortable doing your own things.

So you asked me, you know, can small businesses

do their own accounting.

That's almost going to say it's a bit like, you know, If it's,

it's probably an equivalent of a household or saying to a professional

plumber, for example, I'll just go ahead and plumbing my new bathroom.

Um, it is all fine until you, you know, for example, you have an unpleasant

leak through your ceiling and having to call the plumber back, you will

have to then pay emergency agency fee and you probably have to even

have your whole bathroom ripped up.

So, um, you know, it is, it is okay until something goes wrong.

Um, and for, from, from our perspective, you know, if, if we are a plumber,

Um, you know, how would we feel if our customers insist to, you know, do their

own plumbing and the re the remedial work and repair work, it's not gonna, you

know, we, we, most of the time it takes probably longer time to work out what went

wrong and how do we go about to fix it?

And you probably end up with higher cost than what you were going to start from.

Yeah, thank you.

I think you're right.

And one key thing I'm taking from everything you've said is that it doesn't

matter what software you use, or if you have a spreadsheet or you use something

else, it's all about what you put in and what you used to keep track of.

So what are some of the uh, things that you need to keep track of as

well as income and expenditure.

So what let's let's maybe get really specific.

So what kind of expenditure should you be?

Should you be tracking?

Um, and what is it and, you know, is there any kind of business expense that

might just be quite helpful to people to kind of think about the things

that need to be taken in to account?

Okay, so I'd start by saying you need to capture

every single pound spent by the business, whatever that spends on.

So that's, you know, it all needs to tie back to your bank at the very

beginning, set up a separate bank account.

If, you know, if you haven't done that, it's really, really important to have

a separate account for your business.

So that the funds that are related to the business, aren't mixed up

with whether we have personal stuff.

A lot of people don't do that at the beginning.

And they have a very hard time working out, you know, what's their own income

and expenses versus what's the business.

So I think that's a starting point.

Get that done.

You put your bank statements then, which will, we'll give you all of the income

and expense and you can track that.

Separate to the bank statement you need.

Yeah.

You need to write down everything you need to categorize it.

So what's the money being spent on.

And in very simple terms, you're either buying assets to use in your business.

As you might be buying equipment, you might be buying things you

actually use to make things with.

Um, you could actually just be incurring expenditure.

Now it could be a designing, a website or buying some materials or paying

some, some wages or someone to help you.

So you need to categorize it into those.

So those different things and knowing exactly what you're, what

you're spending it on and why so that it can be recorded correctly.

Um, it's really important, particularly on the, on the asset side of things,

because you do get tax allowance.

Um, things that you're spending money on.

So it's really important to know what you spent it on and why,

so that you can make sure you're getting the right credit for that.

But when it comes to recording it in your tax return.

Thank you.

And we'll move on to talk about tax returns in a minute.

I think that was a really good point.

You made about the bank account because I, I agree that probably

a lot of people don't do that, particularly if they're going to be

operating as a sole trader initially.

Um, but I suppose in that situation, there's nothing wrong with you taking

out another account in your name that you used solely for your business.

Uh, she, and that's perfectly fine.

You don't need a business to have a separate account for your business.

This is what I'm saying do you.

Yeah.

And I think, you know, new businesses shouldn't be, you know, put off with

the thought of like, oh, I, I I've heard reasons like, oh, I don't want to set up

a separate bank account for the business.

And you ask why, and they say to you is the cost, you know, but I think you

have to, you have to respect and treat your business like a proper business.

Um, if you don't, then you're never going to sort of like.

You know, have that mindset of actually trying to run a business

properly with whatever costs that associated to running a business.

That makes sense.

Thank you.

And would you recommend in that case that you would get a business bank account?

Because I know they operate slightly differently to personal bank accounts,

even let's say we'll talk about the differences in a minute, but even if

you're running as a sole trader, for example, would you still suggest that you

get a business bank account or does it not matter so much is the more important

thing that you have a separate account?

Uh, from, from an accounting point of view,

it doesn't really matter.

It's just the fact that it's separate is the main thing.

Um, but from a, from a banking point of view, they, you know, they all

have sort of different requirements, different rules, different products.

So I'd say it's definitely worth checking with your bank

to see, to see what's suitable.

But what I find these days is, you know, banking industry is very competitive.

They want business banking customers.

There's some great products out there and a lot of them they'll do special

deals where it's maybe there's no fees for the first, so many months or, um,

you know, some of them have really, really low fees or really good deals

that say, What puts people off, they think it's gonna be really expensive.

It's not always, so it's worth just researching that and checking, but

the main thing is it's keeping it, it's keeping it separate so that

you've got your personal stuff and business stuff away from.

Okay.

Thank you.

So now we've touched on this a little bit, um, about, I mentioned

sole traders and limited companies.

And I guess the question that even I hear people ask quite a lot is what's

the difference and which one should I do?

So could you talk about that a little bit?

Absolutely.

Yeah.

Um, I can start with this one.

Um, I'll try not to go into too much detail cause this

can get really complicated.

It it's what I would say is it really, really does depend on your circumstances.

So when someone says, should I be a limited company?

Should I be a sole trader?

There isn't just one answer.

Um, there's a lot of different factors to it.

And what might be suitable for one person might not be suitable for someone else,

even if they're in the same business or the same industry that, you know,

depending on their other circumstances, um, it, it can really affect it.

But to start off with, just to keep it simple, you know, sole trader is,

is the most basic way of operating.

Um, it probably has the least amount of requirements in terms

of tax and filing regulations.

It's less complex than if you are a limited company and therefore it's

just slightly less than, um, you know, you don't have to, if you're a sole

trader, you don't have to produce annual accounts in accordance with

accounting standards, file them with company's house, um, comply with all

the company law, you know, that this volumes and volumes of laws you have to

comply with as a, as a company director.

Um, you avoid all that as a sole trader that saidas a sole trader,

you don't have limited liability that you would get with a company.

So, you know, you are the business, any, any liabilities

that you incur on your own.

So if you're, you know, if you're taking part in something, which from a business

point of view might be slightly high risk

you just have to be aware that you actually putting

your personal assets at risk.

Um, so just, just to keep that in mind, if you're doing a straightforward

business, that's very simple.

That probably doesn't matter.

Um, if you're kind of borrowing money to invest in premises and things like

that, that might be something you wantto consider in a bit more detail.

Um, I think it's all very like case on case basis.

Isn't it?

Because we also have to take into account of the client's tax position.

Um, before you decide whether limited company option or a

sole trader will be better.

Yeah, that's right.

Wendy.

I mean, a lot of people sort of, depending on what you do.

So let's just say, if you have a job and you've maybe started at business

um, aside from that, maybe you've got something you're really interested in.

You're thinking, I'm not sure if it's viable business, you kind of you'd grow

it a little bit and you're doing that alongside your other work, but maybe you

don't want to be a sole trader because you'll, you'll, you're gonna want to

decide when you take money out of the business, because as an individual,

you get taxed on everything you earn.

So if you're a sole trader that, that those profits just get out of, it's

all your other income and your tax.

If you're a limited company, you can leave the funds in the

business, invest them and draw those down as, and when you need them.

So you've got more flexibility over actually taking funds out the business.

Yeah, and I think we'd like, everything else, flexibility will

come with a bit of a price as well.

You know, like it costs more to run and operate it in the

company versus sole trader.

So there's always, there's always pros and cons, but, um, this is

where it's important, where if you speak to an accountant, they can,

you know, um, what is the best, uh, the best setup that you should take.

Yeah, thank you.

I think that's very useful cause I know lots of people do get hung up on that.

And I think I'm right in thinking aren't I that there's nothing wrong

with starting as a sole trader and then registering a company a bit later.

What I'm trying to say is it shouldn't start, stop you from starting.

Yeah, definitely

Not at all.

I think, you know, it, you can change it over time.

Um, you know, there's lots of companies that I've seen that

have started they've started.

One thing has gone to something else that maybe later on they'll change back again.

And, um, you really just need to do what's best for you and your

business at the point in time, you know, tax laws, change rules, change.

You need to constantly reassess that your structure is right for you.

So I'd say it's definitely worth revisiting that you know, don't, don't

pick something and stick with it forever.

Yeah.

And that's really helpful.

Thank you.

And it sounds like it's definitely worth if you're not sure speaking to

an accountant and talking about your individual situation, because as you say,

depending on that, that will make it have impacts on which will be best for you.

Yeah, because we are, I'm going to admit, like we have

seen businesses come to us as limited company structure where they could

have just done it via sole trader would have made a lot of, um, you

know, make their life a lot easier.

But, um, again, this is, that's why it's dangerous.

Do not just take advice from, from, you know, from what you read

or what you hear from friends.

I think you really need to know and speak to someone.

Yeah, thank you for that.

And also just to dispel something else that I hear quite often

setting up as a limited company is quite straightforward, isn't it.

It's not very expensive and it's simple to do.

Would you agree with that?

Yeah.

Yeah, it can.

It's very simple.

Um, you know, you can, you can do it online.

It's very quick.

You can kind of wizz through it in a few minutes.

Okay.

It's something that means very easy, but I think where

people fail to understand is the responsibility that comes with that

being a company director, that's a lot.

I think that's the thing that I think that made it so

easy so quick, but some people just automatically go down that route

even without thinking it through.

I think, you know, if, if you've done your research, you've decided that's for you.

It is easy, you know, go ahead and do that online.

Make sure you understand what you're taking on when you do it.

Cause there's a lot of responsibility that goes with it and there's a lot

of rules and laws to comply with.

And how many times have we seen businesses setting up I've

done it and then they realize after six months is not working in, oh,

I need to wind this down again.

This costs and you know time and it is not the most straight forward.

Yeah.

Opening.

It's very quick.

Very easy.

Closing it down.

Yeah.

Not so much.

Um, so yeah, think very carefully that it's the right thing first, because you

could end up with a bit of a mess on your hands if you, if you rush into it

without knowing what you're taking on.

Okay.

And what are some of their key things that you think people should know?

If they are thinking of setting up as a company?

I know there's so many laws and so many requirements, but what are the

sort of the key ones that you think people absolutely need to to know?

You're obliged to produce a set of accounts with

the company and they have to be prepared to, uh, a set of standards.

And there are strict rules around that.

So, and they have to be filed with Companies House there's deadlines.

If you don't meet the deadlines there's fines.

You've got responsibilty to HMRC as well.

You've got your corporation tax returns to prepare again there's

a complex set of rules around those there's deadlines for filing the returns

there's deadlines for making the payment.

Um, you know, there was, there were similar deadlines for individuals,

but just with a company, with a company, there were a lot more, and

there's the standards that you don't have to adhere to are more stringent.

And I think a lot of, um, again, from experience, a lot of

directors of a limited company, they don't understand that they don't realize

that they have a duty to actually, again, the most hates at work bookkeeping.

They have to keep records.

Um, um, you know, there, there are times where they come to you and they have not,

they haven't got any records being kept.

And this case of trying to rebuild what it should be for the last 18 months.

Again, most people don't know that, oh, have I got a duty to keep, to keep that?

Yes, you do.

Um, probably a third thing to mention, just to add to that

briefly, is that with a sole trader, you know, you are the business.

Because there's no separation with a Limited Company.

Um, the company is, uh, is a, uh, you know, like a, a

legal being in its own right.

It's completely separate too, just because you own it.

And you're the shareholder people don't realize that there are

very strict rules around what you can take out of the company.

You know, they, people get very confused and they think,

well, it's, it's my company.

I can kind of take money out whenever I like.

There's very strict rules around what you can take, how much when,

you know, whether it, when you pay it back, there's tax laws around that and

there's all sorts of things to consider.

So it's um, yeah, it's a lot more complicated.

Yeah, I'm definitely getting that sense.

And, and I think as well though, it sounds like, um, that if you are thinking of

setting up as a company, you probably that is probably a situation where

you probably do need an accountant and you probably don't want to be

doing your own accounting, unless of course that's your backgrounds and

your expertise, because it sounds like the requirements for running a company

are something that you possibly might not be able to adhere to on your own.

Is that fair to say?

I'd say it's more challenging.

I wouldn't say you can't do it.

Um, I think it's just making sure you're set up in the right way.

So if you talk to a good accountant, they can work with you.

If you express an interest in saying like, I really want to be involved in

the bookkeeping, the best thing is just to have that conversation and say, this

is how much time I've got to spend.

I want to be involved.

What's the best way for me to do that and let them guide you because

they'll say right, don't touch this bit because it could go wrong very easily

and cause you a lot of problems, this bit's fine spend your time doing that.

Uh, you know, they'll, they'll build it up with you over time.

If you become really confident in an area and you express an interest in

taking on more, they can guide your through, well, you know, the next steps

and say, well, now you might want to think about getting involved in this.

Um, I'd definitely say don't just kind of go off and do it all without being sure.

So it's really important to have that conversation.

And I think it's just that level of trust.

You know, they trust you, you want to do the right things, you the best you can,

you know, um, you trust that, that, that they, they're gonna sort of have that

discussion and build that relationship, take your advice and you work together

and you know, you have that flexibility.

You can really make it work.

Yeah, that makes sense.

Thank you.

I think, yeah.

I was thinking from my point of view, which is that a lot

of this seems very daunting.

Um, but I also take your point that, you know, I think you

need to sort of be involved.

You do need to be involved to some degree, and I guess that's

the sort of, then the last thing I'd like to touch on with you is.

why, well, first of all, I'm assuming that it is important to

know where you are financially.

Um, but I love, I should probably pose it as a question.

So, um, do you feel that it is important to know where you are financially

as a business owner, whether that's as a sole trader as a company

and, um, what and why that helps?

Because I'm thinking that for my point of view, I'm thinking that

probably from two to some sort of degree, you need to know what's going

on with your money in your business.

Can you talk a bit about that please?

I'll make a go and then Laughton can add on, um, so healthy

cash balance is crucial for the survival and success of any business.

However, just by checking the cash balances, it doesn't

give you the full picture.

Um, when looking at the strength of your business, you need to consider

assets, i.e money due in and its liabilities money also out, you need

to know how much cashflow you have.

Have you got enough to pay?

If you've got enough cash to pay your suppliers, your employees, your

tax, or your back bills, once you've accounted for all of that liabilities.

And if you're still in a profitable position, you can then consider

things like paying yourself dividends during the year or undertaking

investments in your business.

To grow it, or even things like taking on additional team

members to facilitate the growth.

So it's really, really crucial to, um, you know, to know where you

are financially, because it, it can absolutely help with your business.

It's a business decision.

Yeah, no, I'd agree with that.

And I think, you know, if you looked at some examples of where people aren't

aware of where they are financially and what can happen, um, take a simple one.

You know, you don't know where you are.

You're not sure where your, what your tax bill is going to be.

Okay.

You get some help with it.

You, you ask an accountant and they say, right, well, this

is how much you've got to pay.

And it's due in a few weeks time, you haven't got the cash to pay it.

If you don't know where you are and you haven't planned for that,

it, so you can be, you can be faced with, uh, an obligation and not be

in a position to deal with that.

So I think it's vital that you know exactly where you are.

Um, you know, not, not to worry over it, but just to be, to sort of have

the ownership of that and that the confidence to know this is where I am.

This is what I've got coming up.

You know what you've got coming, what you've put going out.

If you've got obligations, you want to make sure that you can

meet those when they are due.

Um, you have to plan around that

Always think, if you're just starting your business, you

can always, you know, use a safe method of putting some money

aside, say 20% and put it aside.

I think that would be like, you know, to cover the tax bill, for example, that

I think that's your basic basic rule.

Isn't it?

Yeah it's always good to put money aside.

If you are starting a new business, what's gonna really

help with this is having a plan.

So it doesn't have to be massively complex, but if you're, you know, if

you're investing some of your own money in any business, and if your let's

say you're buying assets to produce something, with just a simple example.

You need to know how long you're expecting to recover those costs.

You know, all new businesses are gonna, they're going to take up money to start

with, as you invest in things that you need to know how many sales you're

expecting over what periods so that, you know, when you can, uh, you know, recoup

the money on these investments that you've made, I think that's really important.

Don't just spend your money blindly, not knowing when or how you're

going to get it back because you get into a mess very quickly.

Um, have a plan.

It won't things won't always go to plan, but if you've got a plan that

you can, you can refer back to you.

That's incredibly helpful.

Yeah, that sounds really sensible.

Thank you.

Um, I, I definitely think you're right.

It's something I see occasionally is where people haven't maybe taken

into consideration all the costs, for example, which then makes their margins

much less than what they expected.

Um, so I guess sort of, I guess the clearer picture you have uh, of the

financial situation of your business so what you're spending money on, what it

costs when you're likely to get it back, what you're charging maybe if you've got

a business, whether it's product services, whatever, I guess all of that helps give

you a clearer picture of where you are.

Budget in a new businesses, your accounting costs.

You definitely need to put that in, in, in, into.

Yeah, absolutely.

Yeah, it sounds like there's a lot of things that may be

You can't go up until the year end and just go and realize you need

an accountant and say, I haven't got the money, so you need to have built it in.

So it sounds like at the outset is where thinking about all the

things that you might have to spend money on in the next year, let's say, and kind

of accounting for that, because also you touched on earlier sort of your tax bill.

So however you set up your business, you are going to

have to pay tax at some point.

Yeah, a common, common mistake that new businesses

often face is, um, you know, you have business owners that are very

enthusiastic about their products.

You know, it could be something that they're really into they've been doing it

for a long time and they're developing it.

They're really passionate about it.

They focus on, you know, the sales and how much it's costing them to sell.

And that's really important, but they forget about all those other costs.

Like when you mentioned your legal fees and accounting fees, the cost of

setting up a website, you know, if you've got a registered with the information

commissioner, there's a fee for that as a bank fees to pay, as you go through

and figure out all of these costs and make sure you factor those in, because

there's no point making a profit on your sale and then, you know, spending

all of that straight out the door and all these other things, you've got to

make sure you cover all those costs.

Yeah, that's really helpful.

Thank you.

That's yeah.

In reality, that was something I have seen a few times, particularly

with products that people have worked out the cost of the product.

But as you say, none of the other costs that sort of come after or

before that, so yeah, like you say, website hosting and all these things.

And then actually that does mean that something that looks profitable initially

actually might not be in reality.

Sorry Wendy, just to respond to that.

Your plan might be that it's not profitable to start with.

It's a new business.

It might take a while to get those volumes to, to build things up.

Um, so you, you know, you might end up being loss-making for a little while, but

as long as you know, that you've planned for it, and you've actually got the cash

to fund that that's the important bit.

It's when you haven't planned for it and you don't know the

position,you're in, Um, that's when it goes, you get into difficulty

Just another tip for new businesses.

So you have to have a very, very robust business plan to start with

where, you know, and if you can put, you can put a lot of, um, challenging

costs or factors in it, then at least it were, you know, try and make your

business as future proof possible.

Absolutely

List up all the expenses you could think of in running a business.

So when, you know, when you do need a software next time, and it's like 35

pounds a month, you can't turn around and say, I can't afford it because you

know, this are things which you have to just like website hosting or that SSL

part and parcel of running a business.

Yeah, that makes sense.

And absolutely these things, you know, sometimes unexpected things do crop

up, but I think knowing ahead of time makes sense, because as you said, it

might be, well, let me to startup a business often you need some level

of investment and it can take time before you start making the money back.

But at least if you know, okay, the outset initially would be this or roughly this.

And I plan to be making a profit in X amount of months, time, at least

you're sort of planning for that, but you're right to go in blindly

not knowing what you're spending and when you're likely to see it back.

I think is a lot morescary, actually

Have a robust plan, a business plan, you know, write it out

and then get your friends to, you know, criticize it as much as they can because

you know, that, that w that really helps give you a better, but a solid

picture than just, you know, fluffy ones and just say, oh, you'll be fine.

No, that's not gonna happen.

You know, another big thing people forget is,

um, you know, their own time.

It's it, there's a, there's a cost to that.

And you know, of course when people are starting a business, they're

prepared to put in as much as it takes and they don't really mind, but,

you know, as things progress you may want to actually think about, okay,

well, if I'm a limited company, I might want to pay myself a salary.

That's a cost that has to be factored in.

So I build that into the business plan.

If not straight away, it's at some point that needs to be considered as well.

Yeah, absolutely.

Cause I think I do know, like lots of people, as you say at the outset, maybe

don't take a salary or take a very small salary, but there has to be a point, I

guess if you're running it as a business, there has to be at some point where you

are taking something from it yourself.

Otherwise it's, I guess it's well, it can't, I'm not saying it can't be a

business, but if you're doing it to make money, then you should be taking

money for yourself at some point.

Yeah.

And you may have other reasons.

I think that's, in fact, you've raised a really good point that

there's various different reasons.

People entrance.

Set out your goals.

When you start, you know, what, what you're doing, what you're trying to

achieve, what are some of your goals?

And, you know, discuss those with people who are supporting you.

If, for example, discuss your goals with your accountant.

If they know what you're trying to achieve, they can help you get

there because people will want different things and if you don't

know where you're heading, you know, you won't when you get there.

We did a business plan where we set up the firm because you

know, we're going to do ourselves.

So that's fine.

Yeah.

And the first day is good.

It's good that you're doing that.

That, um, yeah, especially when you are encouraging that.

So what are, is there anything else that, um, small businesses

sometimes forget to factor in as a costs while we're on that subject?

Is there anything that, yeah, people often, I guess accounting

fees is probably one is there's anything else that, that you see

that people just haven't factored in

Time costs, their own time costs that's the biggest one is that

Yeah, their time costs.

I think sometimes as well, it's these little small expenses, but it's just

a few pounds here, a few pounds there.

They're down at the shops, they pick up something for the business, you

know, they, they forget to record it because they're just doing it as

part of their day to day activities.

Um, it all adds up.

I mean, it's, it's costs incurred by your business.

Make sure you keep the receipts, make sure you write it all down.

And you know, every little bit, every little bit it all adds up

so definitely worth capturing.

And so one final thing I've only just thought of actually, but

I'll be talking about capturing things.

Something that just occurred to me is we've lots of us running businesses

from home now, is that something else we should be taken into account?

So in terms of cost, incurred.

Well, that's probably quite a big subject, but do you see what I mean?

I'm thinking that most of us are working out of our homes,

but not even considering that

Absolutely that that has to be factored in, um, depending

on what you do, how often you work.

Um, you know, this can be something very simple.

It can be something that's really, really complex um, you know, on the

very simple end of the scale, the government make it easy for you.

They did this thing, they give simplified rules.

So it can just be based on the time spent.

Um, you know, if you've got something that takes up a lot of, a lot of power, a lot

of hear, light, energy, you know, let's.

Thinking of an example, maybe you've set up a cake business and you've

got your oven running all day.

You know, your, your gas bill might be more because that

you can factor all that in.

Um, you need to sort of consider what's appropriate for your trade.

Um, there's a really, really complex set of rules around it.

It's definitely worth talking to somebody.

I would say on that topic that there's so many different rules,

different rules, different rules to companies versus sole trainers.

So people often get mixed up between them.

It's very different.

So it's worth taking advice on that.

And it's way it comes in where he, you know, keep reasons

out with client, the apportionment, how much to take what we, you

know, what are we claiming?

Um, So, if you haven't gotten an accountant to speak with, then

you're going to be following whatever interpretation that

you think would be correct.

So, Yeah,

Well, perfect.

No, thank you.

I know that's a really big topic.

The reason I wanted to bring it up is I think that there will be

people who don't perhaps realize.

I mean, I certainly didn't myself realize that you can claim for

certain things if you're, you know, if you're working from home.

So I think even if now everyone's aware of that, that's something they can go and

get advice on, but I think it is something that perhaps can easily be overlooked.

And I thought, while we're talking about costs, let's talk about the

other side as well, because there may be some things you can claim.

Yeah, lots of really good point.

Like, you know, if you cake making, for example, then the cost will

be quite different compared to you know, for example, like we were just

using, if we work from home with a computer that's quite different, right.

Yeah, absolutely.

And I guess, I guess it does depend what you're doing.

You know, maybe you do someone that has heat lamps or something, and that's using

a lot of electricity or whatever it is.

Yeah.

I see what you mean, but I guess it's just worth, I guess the main reason I

wanted to bring it up here, say that everyone's aware that you can claim there

are things you can claim back as well as things that you have to pay out for.

Absolutely.

I think it's really important that you take advantage of all of those things.

Now the tax laws are complex, but you need to make sure you're claiming

everything you're entitled to.

Um, and that, that is just one very good example, but yeah, if you, you

know, if you're working from home, there's cost associated with that,

you can claim some of those costs.

Um, you know, the money's better off in your pocket, you know, paying things to

the government that you don't need to.

Um, so it definitely claim everything that you're entitled to.

And if you're not sure, speak to someone because yeah.

Yeah.

And that's why this is where we come in, spotting the gaps on, you know, is

there anything else that we can do to make, to do, to reduce the tax liability?

Is there an, you know, is there anything that you've forgotten

to claim and things like this?

Yeah.

If you're delivering products.

Um, you may be incurred some mileage, write it all down, keep records for that.

But that's, if you're, if you're delivering products

the business has produced.

That's a business expense.

You can have credit for that.

And people forget to know they keep, they don't keep the

records, they forget get to claim

The record keeping is really so important.

You forget what you've done, you know, people

think, oh, I'll come back.

I'll do that later.

You know, if you come back two or three months later, trying to remember

where you were on this day, delivering what to whom and how far away it was.

You never remember that.

Um, I struggle to remember my child's activity schedule in school.

Log it all, it's all valid business expense.

You should record it all claim credit for that work.

Yeah, no, you're right.

And I mean, I know myself that sometimes I'll see something come up on my business

bank account and I think, what was that?

What did I pay you?

What, you know, and you know, it's, I know it's legitimate, but you

know, then you have to go searching through for receipts or whatever

that is with your business bank account imagine you

just use a joint bank account.

Yeah.

And all these apple pay tapping in and out.

It'll be thousands of transactions where you, yeah.

You don't want your accountants to go through them.

Oh

Yeah.

So the main thing I'm taking away from this is that it's very

important to keep records and to log.

Everything that's sort of the my, my key takeaway from this.

Cause I think we've sort of touched on that so many times in terms of having a

clear picture of who you are, what is, this is the final question I promise.

What is the key thing that you would both like people listening to take away?

That's a very good question.

Okay.

I think there's a couple of key things.

If we said, you know, keep your records.

So we can't use that.

You can say something you said before, honestly, don't

worry if it's something that you said before and just want to reiterate it

because I'll edit this out, but you know how it is when people listen to

podcasts, sometimes in the middle, they lose their way a little bit.

And then when they feel it's wrapping up their attention shifts back.

So that's why I usually ask this question because sometimes people can miss points.

I'll start Wendy um, it's a few things for me.

I think firstly, get, keep records for everything, writes it all down, you know,

what do it, as you go along, it's so much easier than trying to spend days or weeks

later on recreating things, you know, it might be a little bit time consuming.

But the, the value in that you'll appreciate it later on do it you go along.

Um, I think the other thing yet take advice, you know, uh, businesses are

complicated, there's so many different things as a business owner, you have

to do, you know, as great as you are, you can't do everything don't

be frightened of asking for help.

Um, whether it's with your website your accounts, you know, it could be

anything, but just took me to talk to someone who knows what they're doing.

Um, if it's your accountant, just trust them as well.

They want what's best for you.

You know, they don't want you to have a big tax bill.

They, you know, they, they want to do the right thing for you.

So trust them, share your information with them.

They'll you know, if they're a good accountant, they'll do a good job

for you and they'll make sure you're claiming everything you should be.

And, um,

Did you want to add anything, Wendy?

No, no, no.

I think that's all, that's all very valid and you know, and, um, I think, sorry.

Um, I think one, the, the one the general feedback from our client is,

you know, is that peace of mind that they have working with us because

they just don't want to worry about.

I have, you know, did I pay HMRC the right bill?

You know, or if I, you know, have I have I thought 50 quid,

a hundred quid legitly or not?

It's just that you just want to know most, most client just like, I just want to know

the amount to pay and you've done it.

I have no worries.

Just like us.

When we get a plumber to do a bathroom, we know that it's all done correctly.

We don't have to worry about it.

Yeah, absolutely.

I know that the biggest thing for me is just knowing that I'm compliant and

as long as I pay what I need to pay and I keep the records that I need to

keep, I'm not going to get in trouble and doing everything above board.

And I think the peace of mind that gives you is not to be underestimated.

Yeah.

And, you know, stick to what you're good at and get another expert to do stuff

that you know, you're not so good at it.

It's, it's absolutely.

It's, it's a fair deal.

We do it all the time.

Yeah, that's great.

Thank you.

Well, thank you so much, both of you for everything that you've shared.

No worries.

Thank you for having us.

Thank you so much for listening all the way

to the end of this episode.

If you enjoyed it, please do leave me a review that really helps

other people to find this podcast.

Make sure you subscribe so you don't miss any future episodes and

do tell your friends about it too.

If you think that they also might enjoy it, you can find me at

vickiweinberg.com there you'll find links to all of my social channels.

You'll find lots more information.

All of the past podcasts, episodes and lots of free resources too.

So again, that's Vicki weinberg.com.

Take care, have a good week and see you next time.