At OnPoint Accounting, we aim to keep our clients informed throughout the year and make sure they have all their business questions answered. In this blog post, we gather the most-asked questions from small businesses in 2020.
It has been a challenging year for all companies, big and small. However, as much and as fast as the world changes, the fundamental reasons for success and failure remain the same.
In this article we will discuss taxes, accounting, must-have business tools, business loans, staff well-being, the best payroll software and other useful tools to run a successful business.
1. What are the tax deductible business marketing costs?
“I’ve recently shifted to e-commerce after shutting my retail store. I pay for Facebook ads, Google ads, a website and email marketing. Are these costs incurred to market my business tax deductible?”
Any costs that you incur to advertise your business are tax deductible from an overall tax point of view. If you are VAT registered, you need to be careful to determine whether you can claim the VAT on them. For example, Facebook and Google can be particularly difficult to figure out. Some of them charge VAT but it’s Irish VAT so it’s a reverse charge. Some of them don’t charge VAT whatsoever. It’s really important to check where you’re spending your money and have a look at the invoices you get to determine whether you can claim VAT and if there is any VAT to claim. In the grand scheme of things, whether it’s personal tax or corporation tax, all those costs are tax deductible. If you’re not sure on the VAT claim, get in touch with an accountant or a bookkeeper. They’ll be able to help you.
2. How to create a good business plan?
“Hi, Johann. I have a vision to start a business but I haven’t gotten to start acting on it yet. What are the elements to focus on when writing your first plan?”
The key to creating a good business plan is to keep it simple. What’s your business? What are you going to sell? How are you going to make money? What’s it going to cost you to make those sales? How are you going to get the word out? How are you going to tell people that you’re there?
Telling people that you’re there is really important and to keep telling people you’re there is really important. There’s a lot of businesses that close down and say, “there was no local support.” Actually, did you tell any of the locals that you’re running your business? A lot of people don’t. They don’t spend money and time on advertising. You don’t have to spend money on advertising. You can just invest in time and spread it on social media platforms.
It is important to determine whether it’s going to be a service or a product you’re going to sell. How much is it going to cost you to sell that service or product? Once you figure it all out – try and spend time on some local advertising. These are the key areas to get down on the napkin sized bit of paper or onto your A4 bit of paper to create a good business plan. Personally, I’m a bullet point person. I like bullet points. It’s short, it’s easy. That triggers my memory of what I was thinking at the time. Other people prefer paragraphs and that’s fine but keep it as concise as you can, otherwise, you’ll end up spending loads and loads of time writing this huge document and by the time you’ve written it, it’s out of date, something has changed, and then it’s just a waste of time. Keep your plan short and sweet so when you have to revamp it, which sometimes in small businesses can be weekly, it’s not a huge time investment wasted.
3. How to register for self-assessment?
“How do I register for self-assessment?”
What you need to do is to go to the official HMRC’s website. If you Google “how do I register for self-assessment”, the HMRC normally is the top one that comes up. Make sure that whatever you’re looking at ends with GOV.UK because that’s the official HMRC website.
If you go there, you’ve got the option to register for self-assessment there and it’ll walk you basically through what’s a wizard so it asks you lots of questions, gets you to enter some details, and then it will help you apply for your self-assessment records once they quite know what you’re doing. Visit the HMRC website or Google it and it’s GOV.UK at the end just to make sure you’ve got the right one.
4. What are the must-have small business tools?
“Good morning. What are the must-have tools that small businesses should be investing in in the initial year? I run a small e-commerce business and deal with phone and computer accessories.”
For me, a must-have tool is a cost-effective but fantastic bit of accounting software. QuickBooks is the one we always recommend. Then from there, if your website is running and if it’s your own personal built website, finding a way to streamline the sales data from the website into QuickBooks is the next best step. Then using something like QuickBooks receipt capture or Receipt Bank to capture all of your expenses and bills and put that into QuickBooks is really important as well. Basically, it’s about investing as little time as possible into your accounts and bookkeeping. It’s about automation. There are lots of ways to do that.
Other tools I would suggest for an e-commerce business would be something like an email marketing tool such as MailChimp or MailerLite, which we use. There are lots of email marketing tools where you can keep track of everyone’s email addresses and send out advertising emails to them if they give you permission to do so. Essentially, if you’re posting on several different social media websites, you’d probably benefit from a social media posting tool that will post to multiple sites at the same time for you and allow you to schedule those posts, such as Sendible.
5. Do I have to pay National Insurance on a second job?
“I have a day job and I also work part-time to increase income that I recently started. Do I need to pay national insurance separately on income from my part-time job?”
If you’ve got a day job that’s employed and you’ve got a part-time job that’s also employed, by employed I mean you are getting a pay slip at the end of each pay period and you are paying tax and national insurance through the payee system, then your employers will deal with your national insurance for you through your pay slips. You don’t need to do anything else.
If any of your jobs are self-employed, then you will need to look at doing your tax return and that will tell you if you are due any more national insurance over and above what you’ve already paid through your payee job.
6. What are the key steps when applying for a business loan?
“Hi, Johann. What are the key things to keep in mind when applying for a loan from a bank? I’m upgrading my design setup to expand into other capabilities and need funds to onboard some expensive equipment and software.”
Banks are being very, very restrictive and conservative with lending out money at the moment. What we would suggest is having a look at the bounce bank loan because that’s pretty much the only business funding loan banks are giving out at the moment.
The bounce back loan, if you’ve not already used it, is very simple to apply for. You can just apply through your bank and they’ve got a very simple form to fill out. Basically, banks are looking for affordability. If you’re a small one person business, they’ll probably check your credit rating as well as the business’ but affordability is the main key so demonstrating you can afford the plan and how the loan is going to help you increase your revenues is really important.
7. How to hire a good accountant?
“What shall I keep in mind when hiring an accountant?”
When you’re hiring an accountant, there are a few things to check. Do they understand your business? Do they understand you and your personal situation? Are they someone you can get on with? If there’s a personality clash then it is never a good start to a business relationship. You need to be able to get on with them and they need to deliver what you are looking for.
If you’re looking for an accountant who will answer their phone or respond to emails outside of Monday to Friday, nine to five, because that’s when you’ve got your questions, that’s when you’re doing your accounts and your books, then you need to make sure that is something they offer before you sign up with them. Work out what support you need, have a chat with a few different accountants and decide which one do you get on well with. Which ones don’t you get on well with? A lot of people just look at the costs but there’s a lot more to it. You have to remember this should be a long-term working relationship so it needs to be something you think is viable for the long run, not just the short one-off transaction experience.
8. How much should I put aside to pay my tax?
“As a sole trader, how do I pay myself from my business? How much should I put aside to pay my tax?”
What we advise people normally to do is put 20% of their income into a separate bank account for their tax return. The chances are you’re not going to use all of that for your tax return because you do get a tax-free allowance on stuff but you’re better off having too much in that pot and being able to take the leftover money out at the end of the tax year and spend it on something nice and treat it as a savings pot, as it were, rather than having not enough money and not being able to afford to pay the tax bill.
If you’re a sole trader, basically, you just need to record any money that you take out of the business and use yourself and then you’ll declare that as drawings on your tax return and in your accounts or your accountant will do that for you. What you’re drawing out the business is not what you’re earning as profit and what’s taxable. The bit that will be taxed is the profit of the business, not your drawings. It’s really important to get that right.
9. Is it worth outsourcing bookkeeping services?
“Hi, Johann. How expensive is it to outsource bookkeeping? Should we do our own bookkeeping? I’m in the process of starting a supply chain business, packaging materials, two of us, and we’ll start operating from the new year.”
How expensive is it to outsource your bookkeeping is the same as asking how long is a piece of string? It varies. It depends on how much bookkeeping you’ve got. It depends on how frequently you want it done. What I would suggest is have a chat with a local bookkeeper or accountant, get an idea of a price, get a few different quotes in. There are some different models. We have two models. We do hand holding and hands-off.
Hands-off, we do all the bookkeeping for you. That’s more expensive. Hand holding, we help you to learn to do your own bookkeeping, which we think in the first year is really important that you understand the finances of your business on a day to day basis. That, because we are just helping you to do your own work, is a cheaper option. Have a look if there’s an accountant or bookkeeper that you want to work with that will offer something like that, so a support package or full “do everything for you” package, and there’s a few different variations there for you to look at.
10. Sole Trader or Limited Company?
“I’ve researched a lot about setting up a limited company versus being a sole trader but still can’t make my mind up. They always give advantages to both sides. I’m a marketing consultant and may start an agency in the future. Does setting up a limited company make sense for me now?”
I’d go and get advice from an accountant or a bookkeeper about your situation because there are some tax changes coming in for next year at the moment called the IR35 scheme, which will impact you as a contractor or an agency, potentially, depending on how you become an agency, if you’re limited. You really need to go and have a conversation with an accountant on a one to one basis where we get to understand all the things that are going on in your life financially so we can work out what the best scenario is for you.
11. How to keep the staff motivated during difficult times?
“Good morning, Johann. Until the new lockdowns, me and my staff were in good spirits and looking forward to getting back to business as usual. I have a strong six-month plan to stay afloat, but can’t seem to keep my stuff motivated. Have you had any clients who have similar challenges?”
I think everyone is struggling to motivate their team, and that’s because they’re very nervous. They’re very nervous about their jobs, about putting food on their family’s tables, and I can completely relate to where that concern comes from. So what I would recommend, is that you’re very open with your staff team about your six-month plan, you sit them all down, talk them through it. Explain to them what you’re doing to protect their jobs and how you’re going to stay afloat and how as a team you can make it through. That communication of the plan could be a huge morale booster. If they don’t know what your plan is and they’re seeing everyone around you struggling with business, they might be concerned they’re next. So talk to them about the plan, keep them up to date, set them little goals, such as: “this week we need to do this to meet the plan” and feedback to them on those goals. So it’s constant communication, goal setting for them, because that gives them something to work towards. They could just be waiting to hear all that so get them on board with the plan, get them working towards the plan with you, and that will really help them. Hope that helps.
12. Is it possible to keep a steady cash flow?
“Is it possible to keep a steady cash flow for my business without depending on the government support schemes? If so, how should I go about it?”
It depends on your business. It’s very possible to have a steady cash flow, but it’s all about sales and cost savings. You need to increase your sales or you need to maintain your sales and you need to reduce your costs where possible. Ultimately, it’s all about keeping your sales going. Whether you look at social media platforms, websites or collaborations – these are all fantastic ways of keeping your sales high.
13. How to know it’s time to hire the first employee?
“I have noticed I am struggling to keep up with all the work so I am thinking about hiring my first employee to help me out. How did you decide to hire your first employee?”
Taking on your first employee is a huge step in any business. I have actually written a blog post about it. You can access it here.
14. How to choose the best payroll system?
“What would be the best payroll system and why?”
At OnPoint Accounting we use our own personalised payroll system. You can find all the detailed information about my payroll recommendations in our blog post here.
15. How do I pay myself as a director?
“I have a small limited company that I started three months ago. It’s just myself now, should I be on payroll?”
It’s a unique question from the point of view it’s really down to your own circumstances. If you’ve got an accountant, go and have that conversation with them. They’ll be able to look at what your personal circumstances are and whether you are best on payroll or just staying as a director and filing a Self Assessment tax return, or combination of both.
Just go and have a chat with your accountant. If you’ve not got one, if you go to the QuickBooks website, they’ve got a Find an Accountant feature on there, which will list anyone that is a QuickBooks certified advisor in your area and it’ll tell you what services they do and don’t offer, and it will give you some reviews from their clients so you can see who will work for you best. Failing that, you can always get in touch with me if you need to.
16. How to test a business idea while on full-time employment?
“I’m currently still employed but wanting to start my own business as a sole trader doing building work. Do you have advice to test this out on the side before quitting my job to do it full time?”
I think testing any business opportunity out you can on the side is a fantastic approach. It’s a very safe approach. It helps you build reputation and trust and experience before taking the real big step into the plunge of leaving employment.
I started my practice in May 2017, thinking I’ll be in employment for a couple of years while it built up. I resigned from my full-time role in October and resigned from my part-time role, which I took on after the full-time role in the same company, in December 2017. But what it allowed me to do was I worked evenings and weekends. You have to accept there’s going to be some sacrifice of work-life balance there. But it’s for the greater good in the longer run. Take that time, work weekends, work evenings, any days off you have during the week. Try and get some work in those to start building and launching your business. It’s a really safe way to do it. And then, when you’re confident that there’s enough revenue and opportunity coming in, you can take that plunge and resign from your employment.
17. How to create a cash flow projection?
“What would you say to look out for when projecting cash flow for a new business? Is there some kind of checklist?”
Part of your cash flow is really easy to project and that’s the expenses part. Cash flow has really got three stages. You’ve got sales, cost of sales, expenses. I was helping a client with this the other day. He has started an e-commerce business and he is selling electric scooters online. He’s got some fixed costs that are always going to be there, such as website fees, insurance and banking fees. They’re the same things that happen every month, regardless of what happens. They’re the easiest things to put in first. Put those in first. Then you need to look at your cost of sales and your sales. If I sell an item for £10, and it costs me £5 to buy it, then I need to make sure that for every £10 I want to generate in sales, I put a £5 amount in the cost of sales, so that I’m reflecting the right costs and profits. But then there are other complications, such as advertising. If you’re an e-commerce business, for example, and you’re selling an item for £40, you might spend £10 per item in advertising on Facebook and Google, so you need to take those moving costs, and make sure you’re basing your sales and cost of sales on the same figures. You need to decide how many units you’re going to sell, and then you can work the cost of sales and the sales out, but then the other costs at the bottom, those fixed costs are what they are. The only time that really changes is if you take on staff members or new subscriptions, or something like that. Therefore, do your bottom bit first, the fixed bit. That’s nice and easy. Then you need to take into account what actual costs are related to a sale, such as advertising, packaging, postage, and the cost of the item itself. If you can work that out, how much it costs to sell one mug, for example, by working out how much it costs to post that mug, how much average advertising spend you’re going to put behind the mug, and how much the mug costs itself, plus how much you can sell it for.
Work that out and then multiply it by the amount of mugs you’re going to sell, or aim to sell. That will then tell you if you’re going to be profitable or not, as far as the bank balance is concerned. I hope that helps. A bit complicated that one, but yeah, definitely worth having a chat with an expert, if you need more help with that.
18. How to calculate working from home expenses?
“Hello. I’m self employed and have been working from home for the last few months. So I have been able to put my home as an office and claim back some money from that. Now that I’m going into the office two days a week, I’m unsure how to calculate things. Any advice appreciated.”
There’s two methods for working from home. You can either have a flat rate each month, and that’s fine for working from home. And that flat rate is determined by how many hours you work from home. So if you have a look online, you can find out on the HMRC website, it’ll tell you how many hours each amount and what amount you get for that.
So it will give you between one hour and 50 hours a month, you can claim this much. Between 50 and 100, you can claim this much. Have a look online and find that option. The other option is to calculate it on a percentage basis. So you have your bills, the number of rooms, and the amount of time you spend in that room using that room for work. So that gets a bit messier and it would be worth it again, just talking to an accountant or bookkeeper about how they would calculate that for you. Because then once you’ve got that sum from them, you can use that formula going forwards.
19. What are the criteria for the R&D tax credits?
“Good morning, Johann, do you know if the criteria for the R&D rebate is strict? And do you know how much that will be?”
HMRC have quite a few strict criteria for R&D tax credits. You can find more information about it in our R&D blog post here.
20. What are the reasons to start a business?
“Good morning, Johann. What inspired you to open an accountancy practice originally?”
My initial reason for opening my accountancy practice was that I wanted to be self-employed. I wanted to run my own business. I wanted to be able to stop work when I wanted to stop work and go for a bike ride, if the weather was nice, or walk the dog. I wanted to be able to go camping and do photography when I wanted to. I didn’t want to fit it around the 9 to 5, Monday through Friday job. Although, those motivations change. it’s been three years since I started my business, and it’s gone from that through to wanting to spend more time with my fiance, wanting to go on nice holidays with her, etc. The motivation changes, but ultimately, it’s that work-life balance that’s the underlying motivation for why I started my business.
We hope you found this blog post helpful but if you still do have any questions about your small business, feel free to contact us by email, Facebook or give us a call today.