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Setting up a business? How professional advisers can save you money

Kit Klarenberg
Written By:
Kit Klarenberg
Posted:
Updated:
01/04/2022

In part one of our series for wannabe and existing small business owners, we look at how seeking professional advice can help entrepreneurs avoid unnecessary costs.

The costs associated with setting up a business can quickly stack up. Forgetting to address important administrative and regulatory obligations will add to the expenditure. That’s why getting professional advice early on is crucial.

We speak to a lawyer, a financial adviser and an accountant to find out how they can save would-be entrepreneurs money:

The lawyer

Natalie Barnes, an associate in the banking and finance department of solicitor firm Irwin Mitchell, says new business owners should consult a lawyer while their proposal remains an idea, before formal planning has even started.

She says: “Consulting a lawyer before you have invested any time or money in the project will help you understand whether it’s something you can actually do – and something that hasn’t been done before.”

Whatever sector the business is in, it will more than likely have its own set of unique regulations. Law is constantly evolving- especially in popular areas for entrepreneurs such as technology – and seeking advice from an expert will protect you.

If you are planning to hire staff for your new venture, there are various legal obligations to consider.  If you’re not fully clued up on the rules, it could cost you.

A full-service law firm is an effective ‘one-stop shop’, with the expertise to assist you in a variety of different areas under a single roof.

“Consulting a lawyer can prepare you for all of these things, educate you about your obligations, and ensure you are wholly compliant,” Barnes says.

“It also means your commercial activities are documented properly from day one. Many ventures are driven by gentlemen’s agreements at an early stage, and sadly some don’t end well. If you don’t have anything binding on paper, you could end up out of pocket – or lose your idea and business.”

The financial adviser

According to Anna Sofat, managing director of Addidi Wealth, people starting their own business should see an independent financial adviser (IFA) at the earliest possible opportunity – to see whether the new venture is financially feasible.

“Starting a business will of course have huge implications for the individuals involved, which in turn means major lifestyle changes. An IFA can help you understand what these changes mean for you, and your finances,” she says.

If you are looking for a Commercial asset finance to set up a new business, then local database websites that update results on a regular basis are a great place to start. This is a great way for businesses with limited funding to gain access to assets that they need and would otherwise be unable to access without financial assistance.

“It may be you won’t consider those changes a price worth paying. An IFA can appreciate the personal aspect – especially if you establish a close rapport with them.”

For example, small and medium-sized enterprises (SMEs) almost invariably suffer negative cash flow in their initial stages (as their expenditure will likely exceed income), and so will need to hold a cash buffer – a financial safety net ensuring a business can meet bills and expenses every month.

In some cases, the cash buffer will need to be sizeable, and will likely come out of a business owner’s own pocket.

Sofat says these realities will impact on the entrepreneur’s ability to save, contribute to their pension, and maintain the standard of living they and their dependents have previously enjoyed. These, she adds, are concerns that could be overlooked by a business adviser, who may only consider a business plan in terms of its potential profitability.

An IFA can also help entrepreneurs determine what they want to get out of a business, and how.

“Business advisers and accountants are less concerned with an individual’s motivation for starting a business – they are concerned with whether a business will make money, and how. This can lead to key questions being overlooked,” Sofat says.

“We recently helped a client restructure their business, allowing her to take a salary for the first time, and helping her plan what the business will do for her over the next 5 – 10 years. The typical position of an accountant in respect of a limited company is you take a small salary and live off dividends, which is impossible if a company isn’t turning a post-tax profit.”

Sofat says it is important to hire an adviser who understands you and the nature of your business.

“If an IFA doesn’t have an appropriate qualification, ask about other professionals they enjoy relationships with. They may have access to relevant expertise, even if they aren’t equipped with that knowledge themselves,” she says.

The accountant

If you’re setting up a basic company where you act as a sole trader, you may not need an accountant at all, as your primary responsibility will be to file tax returns and year-end accounts.

Depending on your confidence with numbers and appetite for filling out forms, you may opt to do this yourself.

However, if you’re setting up a limited company, an accountant will be vital.

“The bigger or more high-growth a limited company, the more necessary an accountant is and the greater the benefits one can bring,” says Katrine Richardson, director of Metric Accountants.

“A good accountant won’t just help ensure your financial affairs are in order from an administrative perspective. They can help you claim expenses, reduce your personal tax liabilities and those of your business, help you secure funding for your idea, and help you sell your business if and when the time comes.”

Unlike legal and financial advice, it may not be essential to consult an accountant at the very outset of your business – although Richardson recommends establishing a relationship with an accountant at an early stage.

“It’s best to have the relationship set up in advance of deadlines and obligations, so you can ask any questions that arise as you go along, and concentrate on the aspects of the business most important to you,” she states.

“You should also find an accountant focused on your area, because they will be able to give you better advice, and ensure your business is compliant – there are specific tax rules in some industries that can require a specialist to navigate, and there are schemes and incentives a business may not be able to fully benefit from if their accountant isn’t aware.”

Entrepreneurs should be wary of viewing their relationship with an accountant as one-way street, or an occasional liaison centred around tax deadlines.

“Keep in regular contact, meet face-to-face, and listen to their advice,” Richardson recommends.

Unlike legal and financial advice, accountancy services almost always come with a price tag. While it may be possible to barter for a cheaper service, this may compromise the quality of advice you receive, and where you sit on an accountant’s priority list.

“It’s possible to get cheap advice but it strikes me as a false economy – unless you’re very lucky, the advice you receive won’t be the best,” Richardson concludes.

“Be prepared to pay for quality – the savings you make and benefits you receive will at least even out what you spend.”

Click here for: The tax implications of becoming a self-employed, small business owner

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