Your start up questions answered

It can be hard to know where to begin when you're starting a business.

You've come up with a brilliant idea, but where do you go from there?

Leaving work to become your own boss can be a daunting prospect, especially if you're unclear about how, or when, to make a start, and if you don't have access to business support.

According to our recent British Business Dreamers survey, most budding business owners see a fear of failure as the main barrier preventing them from realising their start up ambitions.

Over half of the British adults who took our survey said they had dreamt of starting their own company.

Unfortunately, six in 10 believe their start up plans will never become a reality.

One of the main aims of The Start Up Loans Company is to prove that you don't need a business degree to set up your own company.

In fact, many business owners we've helped have had no prior experience at all.

With that in mind, we've compiled a list of the most common questions that we're regularly asked by business owners.

We hope this guide will shed a little more light on the process of starting a business, and the key things you need to know before and after applying for business funding.

Business finance can be a grey area.

In fact, according to our study, 40 per cent of people cite funding as one of their main business barriers.

The Government-backed Start Up Loans scheme was set up to encourage more people to start a business, providing loans of up to £25,000 (6% fixed interest per annum).

We also provide business support and advice, before and after you receive your loan.

1. Planning your business

"What is a business plan and why do I need one?"

A business plan and cash flow forecast are two very important documents that you will need when starting your company. Your business plan (also known as a business proposal) lays out your company's objectives, strategies, and goals.

If you're applying for a Start Up Loan, or any other kind of business loan, you'll need to submit a business plan to determine your eligibility for funding. We offer advice, a free business plan template and other useful tips to help. There's no need to scour the web for help, it's all here for you.

"What is a cash flow forecast and why do I need one?"

A cash flow forecast is equally as important to your business. This document will also need to be submitted with your loan application. The forecast is used to work out your company's projected revenue (money coming in) and expenditure (money going out), factors that will determine your profit.

Without a detailed cash flow forecast, you leave yourself open to potential financial risk. We offer advice and cash flow forecast templates to help you with all the number crunching.

2. Managing your finances

"When should I start paying VAT and tax? Should I hire an accountant?"

Everyone has to pay tax. As always, the amount you pay will depend on your financial situation and employment status.

The same applies for business owners, too.

All business earnings are eligible for income tax, which will be paid out of your business salary.

The amount of business tax you pay will depend on a number of factors, including the amount your business turns over and the sum you take home as a salary.

To check your eligibility for tax, send off a self-assessment form to HMRC.

You'll also need to register for corporation tax, PAYE for your employers and VAT.

We recommend starting this process after receiving your loan, and registering your company.

As tax and VAT are so complex, it's worth hiring an accountant or financial agent to manage your affairs for you.

What's the difference between corporation tax and VAT?

Corporation tax is paid on the profit your business makes, whereas VAT (value added tax) is paid on all goods and services your company buys and sells.

What's the difference between Class 2 and Class 4 National Insurance Contributions?

You'll still need to pay national insurance when you become self-employed.

How much you pay will depend on the profit your business makes each year.

If your profits are £6,725 or more a year, you'll pay Class 2 National Insurance.

If they are above £12,570 or more a year, you'll pay Class 4 National Insurance.

The rates may or may not change depending on the tax year. You can check these rates at HMRC.

3. Marketing your business

"How can I use social media to raise the profile of my business?"

Have you considered setting your business up on social media? LinkedIn, Facebook, Twitter, Instagram and Snapchat are an easy and effective way of promoting your business.

You should also decide on an online tone of voice for your company.

For instance, will you be funny, informative, or both? This will improve your company's online visibility, and allow you to form online business relationships with your audience and clients.

Looking for ways to promote your business through social media? Top online marketing tips

1. Set up a LinkedIn profile for your business - as well as being another means of promoting your business, LinkedIn can also help you find potential employees and other useful contacts.

2. Use Facebook and Twitter to post competitions, promotions and company news - why not take inspiration from existing brands and companies you already follow?

3. Promote your social media pages via any means necessary - from business cards to customer mailing lists, be sure to include your company's social media handles on any correspondence.

The market research process - who, what, where, when and why?

A market research plan is one of the best ways of establishing whether your business or product will be successful.

Business market research can also highlight if there is a need for a particular product or service.

You may have found a gap in the market, but will people actually be interested in your product? It may be that the market is already too saturated.

One of the best ways of conducting effective market research is to look into all of your potential company competitors, and other associations that may relate to your business.

Once you've got an idea of where your product fits into the market, test it out on your target audience and ask for feedback.

One way of doing this is through market research surveys.

Don't worry if you can't afford to hire a marketing research company.

You could always get in touch with friends, family members or local organisations instead.

4. Employing Staff for the First Time

How to hire staff, and the business insurance policies you will need

Once you've received your Start Up Loan and put your business plan into action, you'll want to think about employing a workforce.

Things to consider at this stage include:

• Employee salaries (you must pay the National Minimum Wage or above at all times)
• Check any future employee has the right to work in the UK
• Register as an employer with HMRC

Before employing any member of staff, you'll need to make sure you have the right insurance policies in place.

Employers' liability insurance

What is employers' liability insurance?

This policy protects you against any claims brought against you for illness or injury. This insurance policy is readily available from a wide-range of insurance companies.

Take note: Not having the right policy in place will result in a costly fine.

In terms of the actual employment process, you can post jobs online, in the newspaper, or via LinkedIn.

You may even want to consider going through a specific recruitment agency.

"What's the difference between being self-employed and freelance?"

When you begin to employ a workforce, you'll come across freelance and self-employed workers.

But what's the difference between the two?

The truth is that there is very little separating both titles.

Freelancers generally work for a number of clients at any one time - they are not exclusive to your company.

You may hire someone who is self-employed on a long-term contract basis, that person will essentially be a contractor, who works for themselves and runs their own business.

Should I hire full-time staff, a freelancer or a self-employed contractor?

Neither self-employed contractors nor freelancers are bound to the same contract as your full-time workers. i.e. you will not have to offer paid annual leave.

Freelancers and self-employed contractors will also often be responsible for their own tax and national insurance, rather than coming on as PAYE staff, they will often invoice for any work.

There is an argument for a full or part-time workforce being more loyal to your business.

Depending on their contract, they will often have to provide a notice period before leaving.

5. The Next Stage

How to apply for limited company status, obtaining a premises and hiring staff

We've talked about using social media, the importance of market research, when and how to pay your tax and VAT.

So, what comes next? If your application for a Start Up Loan has been accepted, you'll want to start thinking about where to base your company, hiring staff and applying for limited status.

We've broken down each section to give you a better overview of each.

When can I start a limited company?

"Should I set up a limited company?" This is another question we're frequently asked at Start Up Loans.

Choosing to register your business as a limited company is another important decision you should make before setting up a company.

The main difference between owning a limited company and being a sole trader is that your business finances will stay separate from your own personal finances.

To put it simply, your business will run as a separate entity.

This in turn would reduce the risk of personal bankruptcy, if anything were to go wrong with your company.

You can apply for limited company status at any time by registering online with Companies House.

However, you must appoint at least one director - this could be a company shareholder.