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Expenses are an unavoidable part of running a business. If you’re new to company ownership, you may be unsure what does and doesn’t constitute a business expense, and the best way to handle them. Hopefully, this brief guide will help you.
From a tax point of view, anything which benefits your business in terms of profit is an expense. This includes things like travelling to a client’s home from the office, or printing costs if you need to advertise in the local paper. This type of expense is tax-deductible, so you can disregard it from your total profits when declaring them to the tax man. Other costs, such as staff lunches or certain equipment, may not be tax-deductible but will still need to be monitored if your cashflow is to remain healthy.
Travel to and from work is not a tax deductible expense, unless the employee has to travel to a place of work they don’t usually go to. Travelling to and from places on company business is deductible, and you can claim 40p per mile if using your own car.
If you or your staff need to stay overnight in a hotel for business purposes, then you could claim this as a tax deductible expense – provided the costs are reasonable. Food, drink and accommodation are reasonable, claiming for a pub crawl around the local town is not. If it’s a place your company will use often, set up an account with the accommodation and have them send the bill directly to you.
The vital part of managing your expenses is to record everything. Receipts and invoices should all be kept, and ideally your costs should be tallied at the end of each working day so you know at a glance what you have spent. If you allow your employees to claim expenses, use claim forms which can then be filed alongside invoices. Business credit cards can make it somewhat easier than using expense claim forms, as the figures are all there on the statement, but you should only allow trusted staff to use these.
Keeping comprehensive records of all expenses (and any benefits your employees are given) is crucial as you will need them at the end of the tax year when filling in your P11D or P9D forms.
You may have your own ideas about the best way to record your daily expenses, but if not, you can’t go wrong with an Excel spreadsheet. You could either use a blank worksheet and build up from there, or search on the internet for a template – the Microsoft Office website holds many user-created templates for you to download and start using straight away. Excel allows you to set up calculation formulae which will keep a running total for you, making it much easier to see how your cashflow is doing on a daily, weekly or monthly basis.
It’s imperative that you have a separate bank account for any company money. Look for a bank which doesn’t charge high fees for business banking, and it’s a good idea to get an account with an optional overdraft in case of dire emergency. If you anticipate your expenses to be of a sizeable amount, you may wish to get a separate account for these, as a ‘petty cash’ account. It’s also a good idea to have an account with online facilities, which will make monitoring your expenses much easier.
Louise Tillotson is a financial author with Moneysupermarket, and has written a number of guides on finance in all areas from business to travel
I am sure we have all driven in fog. Near me, there is a notorious black spot. It’s often foggy, and when it is, it’s like pea soup. As I carefully pick my way along, I’m usually passed by a few nutters doing more than 70mph. There’ve got no chance if they come across anything solid. It’s a way of playing probabilities that doesn’t appeal to me.
I know quite a lot of entrepreneurs that have started their own businesses. The successful ones always seem to have a deep knowledge of the key numbers for their business. As soon as you are talking business, they start telling you their figures. But this isn’t boring, geeky stuff. The numbers at their finger tips are the ones that show if the business is starting to work. They’re usually about the cost of getting new customers and how many were recruited last week. Then they explain how profitable it is, and whether more money should be poured in, or plans changed.
Starting a business is hard. You have to be both driven and confident to succeed. But confidence must be tempered with the reality that we all make mistakes. We need to measure things all the time. That way we can correct those mistakes and make adjustments as soon as possible.
Entrepreneurs that do everything by gut instinct are missing a trick. Like the maniac drivers in the fog, they feel invincible. But unlike most of the drivers, the majority of them won’t survive, at least in business terms.
I have found that as an entrepreneur, it’s essential to recognise what I’m good at, my weaknesses and some gaps in my current business. I have really enjoyed reading Rachel Elnaugh’s comments to all three fishbowl businesses, because it really strikes a chord.
For example, her advice to Matt at Fishbowl 1 is about the cycles of a business, the ups and downs. She says “...feeling real joy for running your business - no matter what is happening – is the best way to keep your energy high and to stay positive”. I have no problem with this myself, not yet anyway, I do love Monday mornings- in fact, there are no Monday mornings for me, because I can’t remember the last Sunday I didn’t work, at least a few hours. It’s that endless motivation and passion and belief in what you are doing that will keep on going when the going is tough.
Rachel’s advice to me is about branding and brand execution, which I totally agree with. However, not a visual person myself at all, I need to work closely with people who are, and who have experience in branding. This is where the team player bit comes...
I have met two other people who have much more experience than me in running a business but we have very strong common goals. It’s, as one of them put it, when 1+1+1 can add up to 10. One of them is very strong on the supply chain, the other is a celebrity chef very much into Mexican food and understands the cuisine as well as I do. It sounds great, but trying to meet and make important decisions with two other people is so complicated and it can take such a long time. We are working on the branding at the moment, but the process is complex and I’m finding this stressful... Maybe I shouldn’t worry so much about keeping everyone happy, but it’s important that everyone is on board.
A recent report reveals the UK is less than half as neighbourly as it was three decades ago with 49% of Brits saying people know more about their favourite celebrity than they do about their neighbour. But neighbours can make for good business; Emma Jones suggests we get to know them and offers five business ideas that are plain perfect for the folks next door.
In releasing the report ‘Co-operative Streets’ Ed Mayo, Secretary General of Co-operatives UK, the organisation behind the research, said: 'We see our neighbours much less but we like them more!' If you faintly know, and like, your neighbours why not start a business that serves your local market. Here are five suggestions.
Community supported baking – form a baker’s dozen with neighbours to form a bread company that is owned by the community to service local needs. This model of community bread making is being championed by The Real Bread campaign which offers helpful information on how to get started.
Parcel collection – in the report mentioned above, one figure stood out. Over 30 million of us collect parcels on behalf of our neighbours. That’s a lot of parcels! With online retailers such as Asos.com wanting to be sure their customers receive deliveries (that are currently being missed on account of people being away at work during the day) why not create a local collection point and ask neighbours to pay a small holding fee.
Dog-walking – make canine friends by starting a business walking neighbours’ dogs when they’re away from home. That way, you earn money and stay fit and healthy.
Raring to Go! magazine franchise – if you’d rather buy in to someone else’s idea, there are a host of franchise opportunities based on selling to family, friends and neighbours. One of them is Raring to Go! a magazine that acts as a guide on where to go and what to do for families and parents in your area.
Telecoms – this one may seem a little extreme but it’s just what the residents of Rutland did when they couldn’t get the broadband speeds they wanted so decided to take matters in to their own hands, find the funds, start a company, and deploy their own broadband. Rutland Telecom was the result and the village of Lyddington can now boast having the fastest fibre-optic broadband in the UK for a rural village. Proof of what neighbours can do when they get together!
Lots of people on Twitter seem to have been talking about eating frogs lately. Whilst I am very much a fan of French cuisine and have been known to munch a few escargot while in France, what’s all this frog eating got to do with serious business people? Why should I join the crowd and start munching frogs? And what happens if I am a veggie?
This frog eating refers to a book and concept by Brian Tracy called ‘eat that frog’.
There’s an old saying that if the first thing you do in the morning is to eat a live frog, you’ll have the satisfaction of knowing that it’s probably the worst thing you’ll do all day. Brian Tracy, in his book, takes this saying as a metaphor for tackling the most challenging task of your day – the one you are most likely to procrastinate on, but also probably the one that will have the greatest positive impact on your life.
As a start up business owner, you will need to eat a fair few frogs before you can get a team around you to delegate and outsource tasks to. I normally have only myself to keep me accountable and focused on what really matters. Some days I wonder whether there is anyone worse than me for procrastinating on the jobs that I don’t enjoy doing. I’m not asking to go back into corporate life or get another boss (heaven forbid!). I’ve been looking for a solution to help me with my procrastination.
After all, I have a reputation and image as The Efficiency Coach to maintain!
I can honestly say that on the days I choose (and that’s the key) to ‘eat my frog’, I am more focused and productive. But it’s more than that... the sense of relief that I get from getting the job done that I was putting off is palatable. The momentum of getting the task out of the way normally gets me through the next few tasks in double quick time.
So, if you have some important tasks that you are putting off, why not try to eat your frog first?
Starting your first business can be a daunting task and raising finance can often seem impossible. So what are your main options?
1 Savings and self-finance
Start putting money aside soon as you can. If your long-term aim is to start a business, cut down on your spending and save as much as you can from your current wages. I moved in with my parents, paid a much lower rent and saved hard to ensure I had as much money as possible before starting my first business.
Cash in any ISA’s or savings accounts. If your business is successful, you may get a much greater return on your money than you currently get, with interest rates as low as they are.
If you have no capital, it is difficult to get finance, especially post credit crunch and with no trading history. Banks require a detailed business plan, preferably with three years projected forecasting and profit/loss models.
However, as interest rates are currently low, a business loan can be a reasonably cheap to borrow. The new Enterprise Finance Guarantee (which has replaced the Small Firms Loan Guarantee Scheme) is useful for start-ups with no capital. Under the scheme, the Government guarantees 75 per cent of the loan should the business be unsuccessful. The EFG is available for businesses with a turnover of less than £25m and offers loans up to £1m. If you borrow under this scheme, you will have to pay a set-up fee, plus a quarterly fee for the borrowing.
Shop around for the best deal on any bank loans – interest rates can vary dramatically. With my original business loan, I naively accepted the first one I was offered (at an extortionate rate) as I was convinced I would not be offered another. Six months later I approached a second bank and moved it, saving me 5 per cent interest.
3 Investors – family and friends
It can be worth approaching family and friends to see if they will invest in your new venture. Discuss various levels of involvement; some may expect a share of your profits, while not wanting involvement in the running of the business (a silent partner). Others may be happy to lend long term, receiving only interest payments, as does one of my investors.
Whatever the situation, always make sure both parties take independent legal advice and draw up an agreement outlining the terms. This prevents any potential problems if the future relationship breaks down.
4 Investors – business angels or venture capitalists?
Look for financial involvement from established business people, either in the form of a business angel (ie a local businessperson who lends money to businesses) or a private equity provider (ie usually more suitable for larger businesses with higher turnovers). Both can provide a wealth of information and assistance, especially if they have relevant contacts. In return, they will expect a share of profits and possibly a share of the equity.
Be cautious about giving away too much control over your business. You must also find an investor that is right for you and the business – having a good working relationship is a must. If you feel this is unachievable, don’t take the risk.
Whilst notoriously difficult to gain Government or EU funded grants, it’s worth making enquiries in your local area to see if you are eligible for help. The EU has a wealth of grants available, especially in rural areas, but they are badly advertised and difficult to access.
The Princes Trust is useful to young people starting up a small business, but the loans offered are fairly small and the criteria strict – although they are helpful for people from disadvantaged backgrounds.
If you are restoring an older property as part of your business, see if you are eligible for support from the local council, English Heritage or local conservation trusts.
6 Reducing Costs
It pays to keep your start-up costs as low as possible, of course. You could get equipment on hire purchase or loan or use a ‘rent a desk’ scheme, for example.
Utilise your friends and acquaintances – perhaps you know designers, IT professionals or PR experts? Set up a social networking account (eg Twitter) and find others in your area who are setting up businesses – perhaps you can exchange skills. I’ve done this many times – exchanging free coffee for help with my website.
7 Don’t put all your eggs in one basket
Share the risk when starting up. Spread the borrowing and the repayment terms. This will make everyone – including you – feel less vulnerable.
Sadie Hopkins is founder of York Coffee Emporium