However it is overlooked that to run a successful business, especially in the early years you need…

• Motivation
• Focus
• Capacity to work hard
• Self –reliance
• Support of your family
• A skill or a good product.

Starting your own business takes determination, perseverance and self-discipline. Beware if you are starting for negative reasons, perhaps just because you dislike your boss or you like drinking in pubs and so thought it would be great to run a pub. Running your own business is a big step. Take time to consider and plan.

It’s not playing golf when you want and taking holidays when you want. There can be a lot of admin and red tape to deal with. The customer becomes your boss and they pay your wages.

Of all the tens of thousands of people who still start a business of some sort…

• By the end of the first year, 40% will have failed.

• Within 3 years, 56% will have failed.

• Within 5 years, 76% will have failed.

Of those who go past 5 years, there’s no guarantee they will survive the next 5 years.

So what are the common problems suffered by small businesses…

• The owners work too hard and for too many hours.

• Personal objectives of the owners such as hobbies and spending time with their family end up low down on the list of priorities.

• The owners spend too much time doing the day-to-day technical work rather than planning and managing the business.

• The owners don’t know where their business is going.

• The owners don’t understand that in order for a business to have a good sale value it must work without them.

• Many owners get frustrated and simply give up and go back to being an employee.

• The rewards don’t match the effort.

They often face common problems in managing their business…

• No consistency in delivery of their product.

• Can’t depend on their employees to get it right.

• They focus on people rather than systems, which creates problems when the people leave.

• Systems that are in place are not documented but in the head of the person who leaves.

• The owner ends up doing everything.

• Employees are not as diligent as the owners.

• The owner spends too much time filled up with other people’s problems and administration.

• The owner always has to supervise and guide employees.

• They have no idea how they compare with other similar businesses and competitors with respect to financial performance or non-financial areas such as human recourses, production, marketing, etc. They therefore don’t know where there are areas for improvement.

With regards to marketing these are common problems for small businesses…

• It’s done ad hoc rather than in a systematised way.

• They don’t know what works.

• They don’t fully understand why their customers buy.

• They don’t know who their most profitable customers are.

• They don’t measure their marketing results against costs.

• They take on customers they later regret dealing with.

• Bad debt problems.

Then there are the dreaded financial problems…

• Relying on short-term overdrafts to try to support long-term growth.

• Over relying on the bank due to over trading.

• No system for projecting income and expenditure.

• No system for measuring key financial indicators against their plan.

• Accounts are not useful to the business.

• Accounts are not produced quickly enough.

We are Accountants in Mitcham, Accountants in Wimbledon, Accountants in Putney, Accountants in Southfields, Accountants in Balham and Accountants in Wandsworth.

HM Revenue & Customs It is necessary to notify HM Revenue & Customs of your existence by completing forms CT41G (companies) or CWF1 (sole traders/ partnerships). The form notifies HM Revenue & Customs of your accounting date, your accountant, and also enables a PAYE (Pay As You Earn Scheme) to be set up, which is a requirement if you are to be an employer. If you fail to register within the first three full months of commencing business a penalty of £100 may be levied.

H M Revenue & Customs – NI Contributions Office

Depending on the level of profit, sole traders and partners have a liability to Class 2 NIC, and these are payable either quarterly or monthly by direct debit. Class 2 contributions are at a weekly level of £2.40 (where annual earnings are £5,075 or more for 2010/11) and the necessary form to collect Class 2 contributions should be completed at the same time as the form CWF1. Leaflet CA02 ‘National Insurance contributions for self-employed people with small earnings’ gives full details and an application form for exemption from liability.

H M Revenue & Customs – VAT

You need to consider if it is beneficial to be VAT registered from the outset. If you are registering for VAT, form VAT 1 needs completing, and if you are a partnership, form VAT 2 needs to be completed, in addition to the VAT 1, giving details of all the partners. Alternatively, an online registration process is available on HMRC’s website. If turnover exceeds the compulsory registration limit, £70,000 at 1 April 2010, in any period of 12 months or less Customs must be notified within 30 days of the end of the month in which the threshold was exceeded.

Time Limits

For National Insurance purposes make sure you are registered within three months from the end of the month in which became self employed. If you do not get around doing this it will result in £100 fine. Further, you will need to make payments of £2.40 per week for Class 2 National Insurance contributions. However, if your earnings are below the small earnings exception level – £5,075 for tax year 2009/10, you are not required to make any Class 2 National Insurance contributions.

How to Register

You have the following options to register:

• Call the Self Employed Registration Helpline on 0845 915 4515 or
• Completing CWF1 or mailing it to HMRC or
• Registering online via the government gateway portal on www.hmrc.gov.uk.

Whichever method you choose to register you will need to provide the following information: full name, address, post code, date of birth, national insurance number and, if you decide to pay your Class 2 National Insurance through a standing order – your bank details.

Joint Notification

Once you have registered, this will act as joint notification of tax and national insurance. You will receive a 10 digit Unique Taxpayer Reference (UTR) and a blank tax return for you to complete for the year 2009/10.

Our Risk Free Guarantee

Sole trader is the simplest form of business to start where you carry on business on your own account. You are liable to income tax and Class 4 National Insurance on your profits. You can employ people including your spouse for work done.

Your business format is not set in stone forever and you can change between them. It is fairly simple for a sole trader to take on a partner and become a partnership and for a partnership to become a Limited Company. There are however more complications with changing from a Limited Company to a sole trader or partnership.

As a Free Index Finance and Accounting Expert I respond to tax questions on FreeIndex.

One of these question was about records that a cash based busines needs to keep for tax purposes. Here is the link that provides this information http://www.freeindex.co.uk/business-advice/what-documentation-to-keep-for-your-tax-return_1144.htm