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Financial advice for starting your own business

Andrew Dark is the owner and co-founder of Custom Planet, a company that produces customised clothing and promotional products for businesses and individuals. Here he shares his advice for financial planning when setting up a business.

So, you have an idea for a business that you’re sure will succeed and want to get things moving. Among the first steps you need to take, such as registering your business with the government and finding somewhere to do your work, you also need to consider the financial aspects of going it alone. I set up my own business while at university in 2008 and have watched it go from strength to strength ever since. So, here’s my best advice for handling your money when setting up an SME.

Look into any funding that is available

When Custom Planet first started out, we had to go down a number of routes to secure funding. At the very beginning, we received £750 from the Prince’s Trust, which we used to cover the cost of building a website and other start-up costs.

For any machinery, we tend to use the asset finance provider Lombard. This is because we find it to be a lot cheaper than bank financing. Plus, we get to pay back the cost of our machines over 2–4 years, which is incredibly convenient. There’s a whole host of asset finance providers out there and we’d certainly recommend looking into their policies if you need to invest in expensive machinery or equipment to get your business going.

Additionally, we relied on our friends and family a lot in the beginning. Of course, this isn’t always a viable option, but we were incredibly lucky to have a support network that could afford to lend us money when we needed it. This was a huge help and gave us the flexibility we needed to make things work. However, I would always advise that you set out the terms and put together a payment schedule before borrowing from anyone, so everyone knows where they stand. We also showed our appreciation by paying back the loans from friends and family with interest.

In terms of the future, we’re considering inviting our employees to invest in the business. We think this could help them to feel like an integral part of our company and keep them motivated.

Create a financial model

If you want your business to succeed, it’s going to require a lot of planning, and it’s incredibly important that you put together a financial model. Doing so will help you to make operational decisions in the short term, as well as roughly predict how your company will progress over the coming months and years.

The financial aspect of your business plan is especiallysignificant if you’re looking to win over investors or apply for a bank loan. If you have proof that you’ve put some serious thought into how much you need to spend to guarantee a certain return, then your business is going to seem a lot worthier of investment.

Keep proper records

You will be required to keep accurate and up-to-date records for your business. Among other things, this will ensure that you pay the right amount of tax, avoid paying any extra penalties, and keep track of your expenses.

There are no rules for how you must keep records and they can be presented on paper, digitally or within bookkeeping software. However, you can be charged a penalty if they aren’t readable, accurate or complete.

It’s very important that you follow all of the rules and regulations when it comes to documenting your business. For more information about the type of information you’ll need to keep, take a look at the UK government’s guide to keeping your pay and tax records.

Get insurance

There are numerous types of business insurance that you need to consider before setting up an SME. Some are compulsory, while others are optional.

If you’re starting a business from home, make sure you aren’t tempted to overlook insurance completely, as this could cause you a lot of trouble in the long run.It’s likely that you already have home contents insurance, so begin by checking through your policy carefully. If necessary, request for this to be amended or replaced to cover any equipment you’ll need to run your business. You can also request to cover any belongings that you’ll be taking out and about with you, such as your laptop and phone.

Additionally, it’s important to consider professional indemnity insurance. This will help to protect you from claims made by clients if there is a problem with your work or you make a mistake that costs them money.

Depending on your situation, you may also require the likes of public or employers’ liability insurance. Carry out a lot of research to ensure you’re covered if anything does go wrong.

Setting up a business can be very exciting, but you need to prepare well if you’re going to succeed. Ensure that you put a lot of research into any areas you’re not sure about — that way, you’ll be on top of your finances from the very beginning.

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