You’ve made your first sale. Maybe it was a bag of logs from the farm gate, a kitchen fitted for a neighbour or a first order through your new website.
It’s a great feeling. Then the questions start.
Which bank account should that money go into?
How much should you have charged?
Do you need to tell HMRC? Should you take someone on to help?
Sound familiar? You’re in good company.
Many new business owners answer these questions on the fly, between jobs and late at night. That’s understandable. You started your business to do the work you’re good at.
But the choices you make in the first few months of trading tend to stick, and small slips in year one can follow you for years. In this blog, we’ll look at five of the most common business start-up mistakes we see and a practical fix for each, so your new business gets off to a solid start.
Why early mistakes can cost your business
The decisions you make when you start up will become the foundations of your business. Your structure, your bank account, your prices and your first hire will all shape what comes next.
Changing them later is possible, but it often doesn’t come cheap. Unpicking a year of mixed-up transactions takes time and accountancy fees. Switching structure can bring an unexpected tax bill. Undoing a bad hire can cost you months.
Cash is usually at its tightest in your first year, too. There’s very little room to absorb a penalty, a slow-paying customer or a costly wrong turn.
And if you ever apply for a loan or bring in an investor, they’ll want to see how the business has been run from day one. Tidy records of your early days will make that conversation far easier.
Five start-up mistakes and how to avoid them
Every start-up business is different, but some slip-ups crop up time and again, whatever the sector. Here are the five we see most often, and what you can do to avoid each one:
Mixing your personal and business finances
This one’s easy to do. You buy fuel on your bank card, pay a supplier from your personal account or let a customer pay into the account you’ve always used. Before long, your business and personal spending are tangled together.
That makes your bookkeeping harder and your expenses tougher to prove. If HMRC asks about a cost, you’ll need to show it was for the business. A personal bank statement full of your household spending won’t help.
If you run a limited company, there’s a bigger issue. The company is a separate legal entity, and its money belongs to the company. Treating it as your own can blur the line that protects your personal assets and may create a tax problem.
The fix is straightforward. Open a dedicated business bank account on day one, before you take your first payment or buy your first bit of stock. Then, set up accounting software from the start, so every sale and cost is recorded as it happens.
Our blog on common bookkeeping mistakes has more on keeping your records clean, and we can help you choose and set up the right accounting software.
Committing too much before you’ve tested demand
Enthusiasm is a strength in a new business. But it can lead you to sign a lease, buy a van full of stock or spend months perfecting a product before you know whether people will pay for it.
It’s tempting to assume everyone will want what you’re selling. In practice, your customers are usually a narrower group, and they may want something different from what you’ve pictured. So, start small and test the market first. You could:
- Produce a small first batch and see how quickly it sells
- Take a stall at a local market or a pop-up event
- Offer a few trial jobs at a fair price
- Take pre-orders before you commit to stock
Talk to the people you hope will buy from you. Ask what they’d pay, what they’d change and where they’d expect to find you. Then, once you have that insight, ask yourself two key questions – is there a gap in the market? And is there a market in the gap?
Once you’ve proven the demand, you can invest with confidence, knowing your money is going into something people want. If the early signs are weaker than you’d hoped, at least you’ve learned that early and can adjust your plans accordingly.
Underpricing and running short of cash
Many new business owners set low prices to win their first customers. It feels sensible, but it can leave you working flat out for very little return, and it’s hard to put your prices up once your customers get used to them.
Cash flow is the other trap. You can be profitable on paper and still run out of money if your customers pay slowly, stock costs you up front, or a quiet month arrives sooner than expected. Seeking a loan or investment before you’re ready can add to the pressure. Here’s how to stay on the right side of it:
- Forecast ahead. Build realistic projections for the next three years, with a detailed month-by-month cash flow for year one.
- Price for profit. Work out your true costs, including overheads and your own time, then add a margin.
- Build a buffer. Set money aside in busy months to cover the quiet ones.
If you’re thinking about funding, our blog on getting your business ready for external funding is a good place to start. Our business support team can also help you with forecasts and pricing.
Skipping the legal and tax groundwork
Paperwork isn’t the most exciting part of starting a business, so it’s easy to leave it until later. A few pieces need doing early, though.
If you’re going into business with someone else, agree on a shareholders’ or partnership agreement while everyone’s getting along. It should cover who owns what, who does what and what will happen if someone wants to leave. Falling out without one can be messy and expensive.
Think about your name, brand and ideas, too. You can register a trade mark with the UK Intellectual Property Office. If you’ve invented something, apply for a patent before you show it publicly, because going public first can stop you protecting it.
Then there are the deadlines. A limited company must register for Corporation Tax within three months of starting to do business. Sole traders need to register for Self-Assessment. Miss these and you could face penalties in your first year.
Choosing the right structure matters as well. Our blog on registering as a sole trader or a limited company explains the differences, and our business start-up team can handle the registrations for you.
Hiring in a hurry or trying to do it all yourself
When the work starts flowing, some business owners hire the first available person. Others try to do every job themselves.
Both can cause problems. A new hire with the right skills may still not suit the way you work or share your standards or values. In a small team, a bad hire can prove expensive. There’s the time spent recruiting, the training and the disruption if it doesn’t work out.
But doing everything yourself also has a cost. Sales, delivery, invoicing, payroll, and the books will all land on your desk and, eventually, something will slip.
So, hire slowly. Take your time and look for people who fit how you work, as well as what they can do.
Test the fit. Use a probation period or a short piece of paid trial work before committing to a permanent hire.
And hand over what you can. Give any specialist or repetitive tasks, such as bookkeeping, payroll and tax, to freelancers, part-time help or a trusted adviser.
Your time is worth most when you spend it on the work that brings money in.
How can Buckler Spencer help?
The best time to talk to your accountant or business adviser is before you’ve made the big decisions. Setting things up well at the start will save you time, money and stress later.
For new businesses, that means helping you choose and register the right structure, set up your bank account and accounting software, and build forecasts and prices you can rely on. We’ll keep track of your first-year deadlines and let you know what’s coming well before it’s due.
We’re easy to reach, so you can pick up the phone before you sign a lease, take on staff or commit to a big purchase. We’ll talk you through your numbers, in plain English, and nobody will make you feel daft for asking.
Our team has worked with businesses in agriculture, construction, manufacturing, retail and professional services for more than 50 years, here in Swadlincote and across South Derbyshire. We’ve seen most start-up challenges before, and we know how to get past them.
So, if you’re about to launch, or you’ve recently taken the leap, get in touch for a friendly chat.