The information contained in this chapter will provide you with essential tips and advice on how to set up your own business, and give you some helpful hints on how to run your own catering business. Finally, I’ve added a contact details page, which you might find useful.
Sole Trader
The simplest way to start up a business is to register as a sole trader. What this means is that you individually are the business, and will operate on your own. One of the biggest benefits to this approach is that you will take home all of the profits, and will be free from any registration fees. Of course, the downside of this is that you will need to be extremely responsible, and must maintain a healthy record of all your own accounts. The best way to do this is normally to employ a bookkeeper, or an accountant, who specialises in the area. You are also responsible for any debts that the business incurs. This makes sole trading fairly risky, but extremely lucrative if you get it right.
Registering as a sole trader could not be easier. Simply go online, download and fill in a CWF1 form from the HMRC website. Once that’s done, and sent off, you will be officially registered as a trading business.
Partnerships
Running a business as a partnership means that 2 or more individuals will share the responsibility. Together, they will be responsible for all of the costs, risks and decisions made by the company. The biggest benefit of this approach is that it allows 2 or more people to have a say in how the business is managed. Anyone who is listed as a partner with the business will be held responsible for debts incurred by the company, and will be listed as self-employed.
When working as a partnership, the partnership itself has no legal value outside of the individuals in it. If one of them should leave, go bankrupt or even die, the partnership will be immediately dissolved. However, this does not necessarily mean that the business itself will collapse, as the other partner(s) can continue to trade using the company.
Registering a partnership
There are 3 different types of partnership:
General partnership-
A general partner is normally someone who has invested in the business, and from that point onwards is heavily involved in the day-to-day operations of the company. This person will take a share of the profits, whilst agreeing to be liable for any debts incurred by the company or partnership. This means that each partner could stand to lose even more than they have originally invested, should the partnership run into difficulty. It is a legal requirement for every single partnership to have at least one general partner.
Sleeping or dormant partners-
This is the name for a partner who invests money in the business, but does not then take an active role in the day-to-day management of the business. Similarly to general partners, sleeping partners are still responsible for any debts incurred by the partnership.
Companies-
Companies can also be registered as members of a partnership. If this happens, then the company in question will have all of the same rights and responsibilities as the other partners in the business. If a partnership consists only of companies, then the partnership will be required to create ‘partnership accounts’, and send their details to Companies House every year. The individuals who are responsible for representing the companies in the partnership will need to include this, when they send their own company account details to Companies House.
Limited Liability Partnership (LLP)-
An LLP consists of a number of individual entities or companies, taking shared responsibility for the business, similarly to any ordinary partnership. However, the difference is that the liability of the partnership is only limited to the total amount that has been invested by the LLP into the business, including any financial guarantees that have been offered. If the business runs into financial difficulty, the members of the partnership have limited protection.
Setting up a Limited Liability Partnership (LLP)-
Legally, limited liability partnerships will need to meet the same requirements as limited companies, and this can sometimes be very difficult. I’d strongly advise that if you are a non-profit making business, you do not use this structure. In order to register an LLP, you should visit the Companies House website, at www.companieshouse.gov.uk
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Chris’s tip… You should never underestimate the importance of a quality accountant and bookkeeper. A good bookkeeper and accountant can save you the cost of monthly or annual fees, so choose them carefully. The following accountant comes highly recommended: www.a4g-llp.co.uk |
Limited Company-
Limited companies exist as individual companies, and can registered through Companies House. The finances of a limited company are therefore separate from the personal finances of the owners. Shareholders are not responsible for any debts incurred by the company, but could stand to lose out on their original investment if the business runs into trouble.
Setting up and registering a limited company-
There are two different types of limited company, Private Limited and Public Limited.
There are a few differences between these two types of company. Firstly, public limited companies are legally entitled to raise funds by selling shares of their company on the stock market. Private limited companies are unable to do this. Public limited companies must also have a share capital of £50,000 or more, with 2 shareholders, 2 directors and a trained/qualified secretary.
Limitations-
Private limited companies are limited by shares, which are owned by shareholders. By doing this, shareholders who have paid the full amount for their share of the company cannot be held responsible for any debts incurred by the business. However, if a shareholder has only partly paid for their share of the business, they will still be held accountable for the amount that they owe for the shares. Private limited companies can also be limited by guarantee. When this occurs, the individuals in the partnership agree on a set liability limit.
In order to register a private or public limited company, you should visit the Companies House website at: www.companieshouse.gov.uk
When registering your private business as a company, you will also need to:
•Clearly display the company name, on the outside of all offices or other places of business;
•Display the company name clearly on all letters, invoices, receipts and cheques;
•Detail your company’s registered office address on all business letters and order forms;
•Send all of the necessary registration forms, fully completed, to the Registrar of Companies.
Setting up a Limited company: Registration documents and forms
To register a limited company within the UK, you must send a number of completed forms to Companies House. If you are setting up in Northern Ireland, then you will need to register with the Northern Irish Companies Registry. Here is a list of the documentation you will have to complete and register:
•A Memorandum of Association, providing details of the company’s name, location and what it will do;
•Articles of Association. These describe how the company will be run and the powers of the company’s directors;
•Form 10 (Statement of the First Directors, Secretary and Registered Office), giving details of the company’s registered office and the addresses of its directors;
•Form 12 (Declaration of Compliance with the Requirements of the Companies Act), stating that the company meets all the legal requirements of incorporation.
When setting up your own catering business, you will need to contact your local food standards agency. The agency will help you to register your business.
Contact your local authority
You will need to get into contact with your local authority before opening. They will help you to do the following:
•Registration of your food business;
•How to plan your business;
•Your waste and recycling collection will need to be organised;
•Learn the appropriate training needed and the equipment required.
You can find the contact details of your nearest local authority at: www.food.gov.uk
Registration of your business
Your business will need to be registered with your local authority and the environmental health service. The registration process is free, but needs to be completed at least 28 days before opening.
Registration applies to most types of food business, including:
•A home run catering business;
•A mobile catering business;
•Temporary stalls, including stalls and vans;
•All of your premises.
A start-up checklist:
•Are your premises registered?
•Are legal requirements met?
•Learn the main general food law;
•You must keep written records of the suppliers that provide you with food or any ingredients;
•Put safety management procedures in place and keep all records up-to-date;
•Keep staff training up-to-date in order to ensure good food hygiene;
•Have you registered as self-employed?
•Do you need to register for VAT?
•Records need to be kept of all business income and expenses;
•Records need to be kept of your employees pay;
•Do you know how to pay your employees tax and national insurance contributions?
•Food and drink needs to be described accurately;
•Do you require licenses for the selling of alcohol?
•Do you require licences for entertainment?
•Do you require a license for selling food late at night or selling on the street?
Useful Websites:
An essential website to use for all up-to-date information and requirements on setting up your own catering business.
When you start up your new business, time will need to be spent on financial organisation. Having the drive to succeed is paramount to your success. However, poor or no financial management from the onset will adversely affect your business.
The way in which you handle your finances will be critical to the success of your business. If you fail to keep on top of your bookkeeping, then the viability and success of your business venture will be compromised. Conversely, keeping bookwork up-to-date will help you through the lean times and allow your business to grow. One of the most daunting things about starting your own business and giving up full-time working is the prospect of looking after the company accounts.
What to do first
I recommend that before you start trading, you get in contact with the local offices of the Inland Revenue and HM Revenue and Customs. Either call them or make an appointment to see them. You can find a number of useful helplines on the Government’s advisory website, using the following contact numbers:
Business Link Helpline
0300 456 3565
Monday to Friday, 9am to 6pm
Business Wales Helpline
0300 060 3000
Monday to Friday, 8am to 6pm
Business Gateway (Scotland)
0845 609 6611
Monday to Friday, 8am to 6pm
Invest Northern Ireland
0800 181 4422
Monday to Friday, 8am to 5pm
When you make contact with the relevant section, explain the details of your business plan and ask them what you need to do. They’ll provide you with advice, leaflets and a selection of forms, such as VAT registration that you may need to complete before you begin trading. This is important! If you start off with all the necessary information, it will make the bookkeeping process much easier. It also helps to have a contact within the local offices that you can call whenever you run into any difficulties.
Business Bank Account
In business, it is impossible to survive without a business banking account. Your business banking account will be the nucleus of your finances, and will record every single business transaction. You’ll use this account to make payments to suppliers and staff, make withdrawals and other transactions that are integral to running a business. A business bank account will also be extremely useful for working out tax, and can provide you with access to vital support and advice. Before setting up a business bank account, you will need to shop around and take a look at the products and services on offer:
Bank facilities for business owners
-Deposits: Paying in all cash and cheques;
-Withdrawals: Taking out cash through an ATM or a bank branch;
-Payment by cheque: Use of a business chequebook;
-Automatic money transfers: Direct debits and direct credits;
-Night safe: Used for safely depositing money when the bank is shut;
-Balance enquiry and statements: For keeping track of your finances;
-Company debit card: This will debit an amount immediately from your business account, and is free in most cases;
-Company credit card: A payment card that can be issued to important members of staff. There is usually a fee per transaction, an annual fee or both;
-Overdraft and loan facilities: Short-term financing, subject to application procedures;
-Asset finance: Leasing or purchasing facilities to enable you to buy equipment;
-Factoring and invoice discounting: Borrowing (short-term) against the value of unpaid invoices;
-Commercial mortgage: Funding to help you buy a business. Banks will often fund up to 80% of this;
-Deposit accounts: For any reserve funds your business may have;
-Merchant services: This will allow you to accept credit and debit card payments from customers. To get one, you will often need two years’ trading history and audited accounts. Upon registration, you will be charged an annual fee, on top of a percentage of every transaction.
Do I need an accountant?
An accountant will be another form of business advisor to you when you first start running your own business. They will be able to give advice on your business plan and the tax issues of registering a new business. Some accountants offer bookkeeping services, but if they don’t, or if you wish to handle this yourself, you can get help with setting up manual or computerised bookkeeping systems. Most importantly, you need an accountant to assist on things such as registering for VAT or PAYE, and the procedures involved.
An accountant will also give you financial advice and help with budgeting, cash flow and credit control, in addition to up-to-date information on any general or legal enquiries.
As your business grows
Whether you are starting up or a growing business, an accountant can advise you on the best way to arrange additional finance without putting your business at risk. Remember, an accountant isn’t just there to help you manage your money. Once you have the finance in place, there needs to be some control, in order to ensure that growth of your business is handled in the right way. Many of your concerns will be financial, adequate working capital, good stock control, invoicing and so on – so an experienced accountant’s advice will be invaluable in such matters. An accountant will also be on top of all the current taxation issues. Taxation is a large business expense and an accountant can work to effectively minimise these costs.
If you’re in business, you must register for VAT if your VAT taxable turnover for the previous 12 months is more than £79,000. This figure is known as the VAT registration threshold. The threshold changes – usually once a year – so you should regularly check your turnover against the current threshold.
You must also register for VAT if either of the following applies:
•You think your VAT taxable turnover may go over the threshold in the next 30 days alone;
•You take over a VAT-registered business as a going concern.
VAT quarterly returns must be completed and sent to HM Customs and Excise, along with any overdue payments. Although you must pay VAT on any income generated, you can claim back VAT on some services; such as office supplies, fuel and so on.
Keep yourself up to date with the latest VAT information and rates by listening to the Budget. This will be done by your accountant/bookkeeper, but it is good for you and your business to be aware of this information. Remember that you are expected to account for every business penny spent, and are expected to show each month’s profit/loss and income/expenditure in sufficient detail, so that the tax can be clearly calculated.
Accountancy software
Buying an accountancy software package can slash the amount of time and effort spent dealing with your finances. In the early stages, you could use the services of a freelance bookkeeper or your accountant, as mentioned above. This person will already have the software, and will keep your books up-to-date on a monthly basis, for a fee.
Financial Management Tip 1:
Talk to the local offices of the Inland Revenue and HM Revenue and Customs. Either call them or book an appointment. If possible, do this before you start to trade, as this will save a lot of complications at a later date.
Financial Management Tip 2:
Get yourself a business bank account. Look around at what’s on offer, and use all of the facilities the bank has to offer you - you can never get too much advice.
Financial Management Tip 3:
Right from the start, keep records of payments and sales etc. Keep all your receipts, as failing to do this can cause problems for your business accounts in the future.
Financial Management Tip 4:
Get yourself an accountant and book an appointment to see them. They will give you advice and information on all of your business accounting matters.
Financial Management Tip 5:
Hire a freelance bookkeeper, who will keep your accounts in order on a monthly basis. This will save you time, and free you up to drive your business forward.
Financial Management Tip 6:
Keep up to date with financial business matters, from VAT to corporation tax. Although your accountant will know all of this information, it is beneficial for you to know it too, so that you can plan and budget your finances in order to develop your business.
Financial Management Tip 7:
Know your business. Know how much profit percentage you make and how much you turnover. Again, this will enable you to move your business forward, or budget where needed.
Financial Management Tip 8:
Keep paperwork. Keep all paperwork that is relevant to the financial side of your business, even if you think it is not needed. It is better to have some irrelevant paperwork than to be missing important records, which your accountant or bookkeeper will be chasing you for.
Financial Management Tip 9:
Make sure you put money aside each month, to cover any future VAT bill or corporation tax bill. This will prevent you from receiving any large tax bills that have not been accounted for.
Financial Management Tip 10:
Although the financial side of the business is extremely important, do not spend hours and hours on it. The important element of your business is your entrepreneurial skills, and developing your company to achieve bigger and better things.
Profit & loss accounts and reading a balance sheet
Companies in the UK are legally obliged to produce financial statements every year. These statements appear in the form of Company Reports. There are two main financial statements:
1.The profit and loss account;
2.The balance sheet.
The profit and loss (P&L) account
This account shows the amount of profit or loss that a business is making. A profit can be brought about in several ways, for example:
•From trading. For example, buying and selling items such as clothes and household goods;
•From manufacturing. For example, producing sweets or chocolate bars.
The top section of this account is known as the trading account, for any business that buys and sells items e.g. a sweetshop. The gross profit is calculated by deducting cost of sales from turnover.
For example:
The profit and loss account for a bookshop
£ | |
Turnover | 1000 |
Cost of sales | 500 |
____ | |
Gross profit | 500 |
Turnover is sometimes referred to as sales revenue and is calculated by multiplying the number of items sold by their average price.
For example, if the average price of a packet of sweets is £1.
The number of packets of sweets sold is 1000.
The turnover is therefore: 1000 x £1 = £1000
Cost of sales is the cost of buying in the items to trade them. In this case the cost of buying the packets of sweets. For example, the sweetshop may buy in packets at an average cost of £0.50 each. Let’s assume that it has bought in 1000 sweet packets
Cost of sales is therefore: 1000 x £0.50 = £500
Gross profit is calculated by deducting cost of sales from turnover.
Gross profit is therefore: £1000 - £500 = £500
As well as the cost of sales, a business will also be hit with overhead costs.
Overheads are typically referred to as expenses, and will include items such as heating costs and insurance. The net profit of a business is calculated by deducting the expenses from the gross profit figure.
Turnover - Cost of Sales = Gross Profit
Gross Profit - Expenses = Net Profit
The Balance Sheet
The Balance Sheet gives an overall summary of the financial position of a business, at the time of viewing. In order to generate wealth, companies will need to use their assets. Assets is the broader term for what a business owns, or any financial sums that are owed to the business.
The business obtains the finance for their assets from two main places:
1.Internally - via capital raised by the owners or company shareholders.
2.Externally - in the form of loans, and other forms of finance.
When registering a business, the business becomes its own legal body, and thus:
•Internal finance is owed to all shareholders;
•External finance is owed to relevant people outside of the business (liabilities).
This indicates that the true value of a company’s assets, is financed by the two main groups – 1. Internal (owner’s capital), 2. External (liabilities).
Business plans
No guide on becoming a successful entrepreneur would be complete without the all-important business plan. A business plan will help you to map out your business idea, assess its viability, and form an action plan for your new business in its early days.
The best business plans will explain only the most essential information. They’ll list what you want to achieve, how you intend to get there and what you will need to do along the way.
Below I have included a sample template for a business plan. The contents and notes are what would normally be expected in a plan, but should be altered to suit your own requirements. Before completing the document, you will need to have done some research into competitor activity, pricing, the market for your services/products, etc.
(Insert the name of your business here)
Date (month and year)
Section 1 - Management Summary
This is a summary of the plan and is better left till last.
Section 2 - Background of the business owner(s)
Give a short personal and business background, showing areas that are relevant to your proposed business, including skills and experience that will be used in the business.
Include things that you need to learn, to ensure that you can run your business well. How will you learn these new skills? When do you plan to learn them?
•Why do you want to run your own business?
•Previous work experience;
•Qualifications and education;
•What knowledge/experience do you have of the industry that you propose to work in, and what training have you completed?
•Details of future training courses you want to complete;
•Consider a SWOT (strengths, weaknesses, opportunities, threats) analysis;
•Any additional information.
Section 3 - Product or Service offered
•Give a detailed description of your business or service (not too technical);
•Use bullet points;
•Include pictures if relevant.
Section 4 - Your Customer/Target Market
Who are your target customers? How many are there? Why should anyone want to buy what you provide? What is your evidence for this and what market research has been carried out? Are there enough customers for your business to be viable?
•Describe your typical customer in detail;
•Where are your customers based?
•What prompts or motivates your customers to buy your product/service?
Market Research
Provide evidence and detailed findings of your market research. Give facts rather than “your interpretation”. Be objective. You could use any of the following to help with your research:
•Questionnaires – provide a copy of any used;
•Test trading;
•Word-of-mouth;
•Additional information;
•Internet / Yellow pages / Trade Contacts / Surveys;
•Is there a demand for your service or product?
•How big is the market/demand?
•Current trends up or down – detail how you found this out;
•Any important facts and statistics on whether the market is seasonal or dependent on other external factors, like the weather;
•Your own knowledge or past work experience.
If you are interested in or want to research statistics, good places to find information are:
•What factors help your customers to choose which business to buy from?
•Have you sold products/services to customers already?
Section 5 - Competition
Who are your competitors and how many are there?
•Direct Competitors – those selling the same or similar products/services. I.e. if you are a coffee shop, then other coffee shops, cafes etc.;
•Indirect Competitors – those selling alternative products/services.
If you are a coffee shop, provide details of any other businesses providing food/drink.
•Why should anyone want to buy from you and not from your competitors?
•What is your USP (Unique Selling Point) – why are you different?
•What will your customers look for when buying from you or your competitors?
Section 6 - Marketing and Promotion
•What information/facts are you going to tell potential customers about your product/service to encourage them to buy from you?
•What are the features of what you sell?
•What is the benefit to your customers?
•What methods are you going to use to reach your potential customers?
•Why did you select these methods and how will you measure the success or failure of your marketing?
•What offers and promotions are you going to use under each of the following categories:
-Attracting new customers;
-Building loyalty/retaining customers;
-Encouraging each customer to spend more.
Section 7 - Pricing and Costing
•How have you arrived at your selling price?
•What is the cost to you of producing this product/service?
•What are your competitors charging?
Section 8 - Sales Forecast
•What value of sales do you expect to make each month in the first year?
•It is unlikely that your sales will be the same in every month of the year, so show your monthly sales estimates;
•Show how you have calculated these and explain (in words) how you have arrived at the monthly values. For example, have you considered seasonality and other reasons why customers might spend more or less money with you in different months?
•Give a summary of how confident you are of achieving the forecasted sales.
Section 9 - Admin & Legal Requirements
•What paperwork do you need to put in place before you start trading: terms and conditions, enquiry forms, quote forms, invoices, receipts etc.?
•How are you going to keep control of all your business information, on computer or manually?
•What information are you going to collect? For example, customer details, employee details, and stock, financial information.
•How will you keep your financial records?
What legal aspects do you need to consider?
•Supply of Goods Act;
•Health & Safety;
•Food Hygiene/Safety;
•Local Council permission;
•Copyright/Patents etc;
•Distance Selling Regulations;
•Data Protection;
What types of insurance do you require?
•Public Liability;
•Professional Indemnity;
•Employers’ Liability;
•Contract Dispute;
•Income Protection and Critical Illness;
•Life Cover;
•Stock/business asset cover;
•Advising your mortgage company/landlord.
Section 10 - Start-up Costs
•List all costs incurred at start-up, including equipment already purchased for use in the business, explain how you will fund this;
•Also include how much money you are planning to borrow (if any).
Section 11 - Personal Survival Budget