Setting Up A Business

Discussion in 'Taylor's Tittle-Tattle - General Banter' started by a19tgg, Jul 6, 2020.

  1. a19tgg

    a19tgg Reservist

    It may seem like a bad time, but in actual fact the whole Covid situation has meant the stars have kind of aligned and it’s a good time for me and an ex colleague to set up our own business together.

    It will be low overheads, we won’t need an office, just a website; phone line and that’s it’s really at least to start with.

    The main issue (like most new businesses I guess) is that it’s going to be several months before we probably start to turnover any meaningful amounts. I can manage financially for a little while, but not indefinitely and certainly not a year, so would need the ability to utilise any income at some stage.

    I appreciate we need the services of an accountant which we will be engaging, I just want to get a feel for whether it is actually viable for me before I chuck myself in head first really. Although our initial outlay won’t be huge, there are certain things I don’t want to skimp on like the website, so don’t want to plough money in before being 100% sure it’s the right thing. I’m confident we can make it a success, but I need to be fully committed to it for it to work.

    I suppose my main question is, how do you actually pay yourself? I’ve heard of paying yourself a small salary and then dividends to be more tax efficient, but is this a yearly thing?

    Also any other tips, however small would be most appreciated.
     
  2. Diamond

    Diamond Squad Player

    The only issue I see straight away is the words "ex colleague". I know of several people, (including my own Father), who were badly let down by so called friends when they went into business with them.

    Can you do this yourself?
     
  3. It's worth paying yourself enough in salary to use up the zero and lower tax rates before resorting to dividends I would assume.
     
  4. a19tgg

    a19tgg Reservist

    I do really trust this guy, when I say ex colleague, he is but he’s also a friend. I know how he works etc. I know you can never say never about these things but if anything he’ll be bringing a bit more to the table as far as existing clients are concerned etc. It’s something I could do in my own, but he’d now probably do as well, so I think all things considered we’d be better off together.
     
  5. Remember that the sex trade is still largely illegal in this country and social distancing is still required. Your business will only be viable when the "1 metre restriction" drops to 4 inches.
     
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  6. a19tgg

    a19tgg Reservist

    Thanks, I thought that might be the case. I know I’d read about directors furloughing themselves and claiming their salary, however this was then only a very low amount based on the reasons you mentioned. Just wasn’t sure how the dividend part then works.
     
  7. a19tgg

    a19tgg Reservist

    And that’s only on a very warm day
     
    The undeniable truth likes this.
  8. Arakel

    Arakel First Team

    The majority of business startups don't become profitable for at least two years. You need to be in a position where you can survive financially until then if you end up being one of those businesses, because the vast majority of startups will fall into that area.

    When we bought our business, I continued working my job and my wife ran the business. She took zero compensation for the first 2.5 years while she got it up to speed. She was then in a position to start paying herself. Of course, Sod's Law being what it is, along comes covid-19 about 3 months later and we end up forcibly closed...

    Essentially, you need to assume the worst and see what that means for you and your fledgling business. How long can you survive if things don't go as well as you project, and what will the impact be to you and your immediate family (if appropriate)? Planning for the worst case scenario is a very important thing to do. With life being what it is, you'll inevitably hit unforeseen road blocks that force you to handle things you didn't anticipate.

    I will also echo some of the above comments: don't go into business with someone else if you don't have to. Aside from sidestepping the inevitable "difference of opinion" issues that contribute to the downfall of a lot of new businesses (sooner or later you're going to disagree on something significant), it essentially doubles the amount of cash flow you need to remain viable in the early days as you have two people trying to make a living off it instead of one.

    Owning your own business is a great feeling and I highly recommend it, but it can easily go **** up if you don't plan ahead and if you don't have a reasonable degree of financial security going into it.
     
    a19tgg likes this.
  9. a19tgg

    a19tgg Reservist

    Thanks for the input.

    I put my house up for sale in Feb just before the Covid **** hit the fan. That doesn’t look like selling anytime soon now, but that would’ve given me a huge amount of financial freedom as there is a lot of equity in there and I was just going to rent for a bit anyway. Basically I was going to get my overheads right down whilst having a ton of cash to fall back on so I could just commit 100% to it and not worry too much about income coming in.

    This is really where the reluctance comes in, because I can’t rely on being in that position now yet I still have obvious overheads to cover. I can cover them for a period of time but beyond that things could get a bit hairy.
     
  10. You can only furlough staff enrolled under PAYE scheme before March, so that income will not be available I'm afraid. Regarding your mate, you need to think of structure. A partnership rather than equal shares in a Limited Company might be more appropriate, although this removes the opportunity to pay by dividend. A partnership is generally easier to unwind than a company; certainly has less onerous tax and corporate compliance burden. A Ltd Co offers more protection in the event of a public liability disaster, but you should be taking out public liability insurance in any case.

    Another thing to think about - will you need to register for VAT (as the threshold is £85k, if you don't see yourself exceeding this between 2 of you, is the business viable?)? Is the service you are providing vatable?

    Other advice - make sure you record every penny you spend.
     
  11. a19tgg

    a19tgg Reservist

    Thanks. The point about furlough was not to attempt to be furloughing myself, it was merely that I’d heard of people claiming furlough on their salary but they couldn’t on dividends. Hearing this as part of the Covid situation that was really the first time I’d heard the structure of how a director might pay themselves as had never previously looked into it.
     
  12. Arakel

    Arakel First Team

    I don't blame you for being reluctant. I would be too, if I was in your shoes. Make no mistake: starting your own business is a risk. Anyone starting one needs to accept that, because you have to be open to reality if you want a chance of succeeding. There's nowhere to hide with your own business; you can't just wish away your problems with positive thinking.

    Quite honestly, the best approach would probably be to have some kind of support job while running the business at the same time. If/when it takes off, you resign the support job. This can mean working a LOT of hours, but you'll probably be safer in the long run. If I wanted to start a business and had no significant other to provide interim financial support, it's probably the route I'd go.

    One my wife's friends just started her own business (horse boarding facility) and she works full time as a realtor (she makes her own hours around the business) as well as taking care of her growing business.

    It's hard work, but the beauty of your own business is that all of that work is for you rather than for someone else, and you're investing in your own future. I can say without a shadow of a doubt that my wife is the most professionally fulfilled that I have ever seen her. She's also working a lot harder than she ever has before!
     
  13. a19tgg

    a19tgg Reservist

    I think this is possibly the way forward. If I could find something that ideally involved working from home that I could do alongside it. This is something I’ve been trying to give some thought to today.

    I didn’t add in my first reply, sorry that you have been affected by the current situation and it’s had such a negative impact through absolutely no fault of your own.
     
  14. Carpster

    Carpster Reservist

    I got clobbered by a so called friend. Nearly a year of no wages, so lived on my card and nearly 20k of my parents money. Luckily I'd made a healthy profit on my apartment that got me out of the crapper. But was back to square one at 30. I'm still effin fuming writing this 20 or so years later.
    Have to add that I was naive as fook. But I'm the type who always learns from mistakes.
     
  15. Carpster

    Carpster Reservist

    Have you looked for investors or isn't it necessary?
     
  16. UEA_Hornet

    UEA_Hornet First Team Captain

    If you send me your name, credit card number and the three digits on the back of the card I might be able to get the money back for you...
     
  17. Are you sure you will have the time with the new business and 5 hours a day on here ? Mind you, I hear WFC Forums moderators fees are very healthy so might be worth a look ?

    On a serious point, make sure the ownership gives you both the same rights and understand what happens if you can't agree on something.
    Make sure you are both contributing the same level of input/hours and that he is as committed as you and you have the same future plans. You don't want to be putting in 80% of the work and getting 50% of the benefit.
     
  18. Lloyd

    Lloyd Reservist

    Your accountant (a good one will save you a fortune) will be able to explain the benefits of limited company or partnership etc and you can decide which will be the best structure for you. You can start paying yourself as soon as you've got some money in the bank and your accountant will guide you regarding how much you declare as salary or dividends when the time comes to do your tax return. But put something aside for personal tax. i.e., for every 1000 you take out the company put, say 250 aside in a separate accountant to pay your personal tax when the time comes. The accountant will go through all this with you so don't worry about it too much.
    If you don't mind me saying so you don't seem 100 per cent certain that you're doing the right thing. You mention getting some extra work alongside it which to me sounds daft. If you're starting a business you need to be100 per cent committed to it - don't sod about with part time jobs to keep you in beer and fags for a while!
    Is your business partner reliable and in a similar position to you (i.e., mortgage, kids, bills to pay etc)? If not s/he may not be under as much pressure to drive things on as you?
    At the end of the day there'll always be plenty of reasons not to start a business but if you're convinced you can make your venture a success (how do you define 'success'? in financial terms? lifestyle benefits?) you won't let them stop you.
     
    Last edited: Jul 7, 2020
  19. Teide1

    Teide1 Squad Player

    Is there any flexibility in your current job so you could do both, between you and your partner you might be able to work something out so at least you have some guaranteed income coming in! are either of your two jobs shift work or flexible working! lots of possibilities/permutations! GOOD LUCK!
     
  20. Carpster

    Carpster Reservist

    Inboxed you
     
  21. ST1968

    ST1968 Academy Graduate

    With my apologies for a fast reply:

    1) re company formation. Look up your nearest TaxAssist High Street accountant. They will give you 30-60 minutes free advise re Ltd vs. self employed vs. partnership and all things VAT registration, company formation etc.

    2) But don't do 1) above until you have a clear one pager that states your company proposition. It should outline in one sentence the insight/customer problem that you are aiming to solve. Then another why you have the product or service to resolve it. A third on how you will acquire customers and a fourth with the nuts and bolts of your offering in terms of prices and service. Be clear from the onset on these four pillars to the business but be flexible and keep coming back to this one page blueprint regularly refreshing it, improving it, living the statements you make.

    3) Get a coach, a mentor. Someone you gel with. Someone who wont be afraid to tell you the way it is but support you with real experience/solutions to help drive you forward. Depending on your location there will be local advisories who will point you in the right direction.

    I have worked with a good number of start-ups being part of a growth accelerator and being an NED. Mostly though just loving coaching entrepreneurs. Much of it pro-bono. I would offer to meet for a coffee but sadly family priorities make it impossible. But you'll find lots of support out there - hunt it down. Get all the free advice you can. Your accountant will know who to talk to. And your business banker will to.

    Best wishes.
     

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