Tax and Financial Tips for a Start up

Starting up a business is usually an exciting and scary time. Once you have a business plan in place and your have secured a source of financing your idea. The following are a few things which one needs to be mindful of:

Accounting

Accounting is by far, one of most important aspects of starting and operating a business. It’s so easy to get caught up in the startup glamorous tasks of designing a business card or choosing a business name, yet without a solid understanding of the numbers you will not survive.
The streets of entrepreneurship are littered with former business owners who ignored the financial side of business only to discover too late they were operating at a loss not a profit. Without a firm grasp of your margins and cash flow, you can price yourself right out of the market.
Unless you are a numbers wiz or have a degree in accounting, you will need to employee the services of a professional to set up your accounting system. To get a grasp on your small business accounting and financials, should you hire a bookkeeper or an accountant?

Registration of company name

A new business could either be a private limited liability company or a business name.
For a small business starting out, it may be wise to start off with a business name; this will save a lot of issues in relations to federal taxes. The sole proprietor only pays personal income taxes.
As the business grows, a private limited liability company can be registered, and the business activities can be transferred. Please consultant a tax consultant before carrying out this process. This will help to retain the same structure and all clients remain the same. The only change is the letters ‘Ltd’ which will be added to the name.
The major arguments however for starting off with a private Limited Liability Company is that some contractors, usually government bodies, prefer to transact business with companies and not sole proprietorship. Also the company will be required to file their financial statements with the relevant tax and other regulatory bodies while business name do not have such responsibilities.

Tax planning

From the onset, all expenses should be incurred on behalf of the company and it must always be recorded so that it does not suddenly become a personal expense. It is usually tough at the startup stage to remember this but new businesses must try to do this so that these expenses can be allowable deductions for future tax payments.  

VAT Registration

Upon the registration of VAT, a new business must ensure that it complies with VAT regulations. It is best for all prices to include VAT. Otherwise the business may be saddled with that responsibility as the VAT office will collect its funds regardless of who suffers the outflow.

Staff cost

At the early stages of a business it is usually wise to put all staff on a contract. This will save the company payments of pension contributions and also save them from the usual hassle of the state PAYE office. When the business grows then the company can register for PAYE, pension contributions and other contribution it deems fit.

Budgeting

Think of a budget as a useful tool—a written financial plan that helps you set goals and measure progress. Start by coming up with a sales revenue target. Make it your best estimate. Based on past experience, estimate your cost of goods sold (e.g., 70 percent of sales) and subtract it from the sales revenue to come up with your estimated gross margin. Forecast variable expenses (items such as travel and commissions that vary according to the level of sales) and fixed expenses (items like taxes and rent that stay the same, regardless of sales). Subtract these expenses from your gross margin to arrive at your estimated net income (before federal taxes). Break your annual budget into quarters and monitor your progress every three months to detect problems and make corrections.

BAMIDELE OGUNLOWO FCCA, ACA, FFA, ACTI is the Lead Consultant at BAO Partners a business advisory, audit and tax consulting firm. He has over ten years work experience in accounting, audit, financial control and investment banking both abroad and in Nigeria.
Tel: 01 760 7751