While London may have cultivated a reputation for being Europe’s foremost start-up hub, the statistics for business survival rates are less than encouraging. According to data from the Financial Times, as of late 2017, only 50.1% of new companies in London lasted beyond three years. Add this to the fact that 2018 marked the first time small business growth numbers in the UK saw a deficit since the year 2000 (-0.5% growth), as well as figures suggesting that there has also been an exodus of start-ups from the capital into surrounding areas and other cities, and it becomes clear that start-ups in Central London will face serious difficulties when it comes to establishing themselves and staying afloat this year.
Let Tax Agility, London’s local small business accountants take a look at some of the challenges commonly faced by start-ups in the Central London area, and the ways your venture might be able to navigate and survive them.
It goes without saying that London, and in particular Central London, has always been among the most expensive places to settle and do business – primarily due to its status as one of the world’s finance and business capitals. Following the city’s recent start-up boom, an increasing influx of budding entrepreneurs has resulted in London becoming a victim of its own success, with high rents, tough competition and prohibitive initial start-up costs meaning new businesses are finding it harder to survive here.
While there is capital to be found in Central London, it’s an investors’ market – and as such, it isn’t always easy for start-ups to source the necessary capital required for establishing their business and surviving. Typically, investors in the UK are risk-averse and wary of ensuring their investments reap the best tax benefits, so funding momentum in the UK has never really taken off.
In order to survive, consider bypassing the traditional sources of capital. There are crowdfunding platforms that can assist with the funding of a start-up throughout its development and early years. Moreover, making use of more affordable co-working spaces instead of renting an office is also an effective strategy for reducing costs until you are well established and can afford your own space. These suggestions represent but a few of the plethora of tactics available to start-ups looking to find their place in the London market, and our local, specialist accountants are here to advise you on how best to do so.
Poor time management can hinder a start-up’s growth, and there are many distractions for a new business owner that can detract from workplace efficiency. From emails and phone calls to meetings and miscellaneous tasks, even the supposedly helpful incubators, accelerators and start-up conference events can hinder your business’s operations. Sometimes these events are more of an excuse for like-minded people within the start-up ‘industry’ to get together and engage in banter, and although this networking could potentially prove beneficial somewhere down the line, it’s not always the best way for an entrepreneur to spend their time.
Another potential time-waster you should be wary of avoiding is the “Hesitant Investor.” These are individuals who feign serious interest in your company, asking for information over and over again despite having already decided not to invest.
The key to navigating the issue of time management then is to be disciplined when it comes to your allocated tasks, which can be implemented by the use of a regimented planner to track and categorise all of your activities. You should determine the percentage of time you spend on each activity, and assess their importance and contribution to the overall growth of the business. Moreover, if you’re finding yourself inundated with work, another solution is to delegate tasks to employees or to outsource functions such as accounting, recruitment and marketing if they are not your main strength.
Building the right team
Often success for a start-up or small business relies on the talent at its disposal. If you can’t recruit the best talent, your business mightn’t be able to compete with start-ups that can, meaning you aren’t as equipped as your competitors when it comes to surviving. The cost of living in Central London is one of the greatest challenges faced by start-ups operating in this area and can be prohibitive, with average rentals higher than most places in the UK. Competition for talent has also driven up salaries, with the average weekly wage in Central London currently looming around £690.81, which your business may not be able to afford. Some solutions include hiring interns and apprentices from local universities, hiring from other countries and remote work until you can afford to hire in London.
Eventually, the long-term solution is to hire well and have a willingness to train. You might also want to consider applying for the Government’s Enterprise Management Incentive Scheme (EMI), which allows small businesses and cash-tight start-ups to offer employees equity in their company as a way of incentivising employment in circumstances where they can’t afford large salary packages. For more information about the EMI scheme, you can read here.
An innovative business idea will not guarantee success on its own. You need to know the best way to market your products and services via print media, online and mobile platforms, advertising and so on. The goal for this is simple, you want to maximise the return on your marketing investment, which means an efficient, targeted marketing campaign that delivers quantifiable results. It is usually best practice to outsource this if you’re not experienced or qualified, however, you don’t necessarily need to employ the services of an expensive marketing firm. A freelance researcher who has experience in your field of business can conduct market research to ascertain the most effective strategies for your company and will create a report with suggested niches, backed by potential profit margins and a complete SWOT analysis: Strengths, Weaknesses, Opportunities and Threats.
Accounting and bookkeeping
Keeping track of legal and financial records can be a daunting task for a new entrepreneur, and it is best to engage professional help. There are numerous London accountancy firms such as Tax Agility that cater specifically to start-ups and small business enterprises. Whether you work in Information and Software Technology or have the next big idea for Courier Services, we can assess, advise, prepare and manage your company’s financial and bookkeeping needs, while recommending grants and reliefs that will save you money. With the Government’s ‘Making Tax Digital’ initiative coming into effect on 1 April 2019 for VAT-registered businesses with a taxable turnover above the £85,000 threshold, and for all sole traders, partnerships, landlords and trading companies by April 2020, we can help you to choose the best, most efficient method for keeping your accounts in order – as a gold partner of Xero, Tax Agility can assist your business’s adherence to the imminent legislative requirements.
Taxes your business will be liable for
As a new business, there are certain taxes you need to be aware of. A reputable local accountant can keep your finances up to date while advising you on the best avenues for limiting any exposure.
- Corporation tax is the tax levied on a company’s profits. UK resident companies are subject to Corporation Tax in the United Kingdom on their worldwide taxable profits.
- Income tax is generally deducted from an employee’s salary on a monthly basis, through an employer-run system known as “Pay As You Earn” (PAYE) – paid monthly to HMRC.
- Value Added Tax (VAT) is a consumption tax on goods and services in the UK and European Union, with different member states having different levels of VAT.
- National Insurance Contributions (NICs) is the UK’s social security mechanism. Both employers and employees contribute to NICs as a percentage of the gross salary paid to an employee.
- Exemptions and relief – New businesses benefit from a variety of tax allowances and reliefs which can reduce their tax liability. Start-up businesses setting up in certain zones may qualify for a tax exemption of up to 100 per cent for five years. There is also an assortment of reliefs, such as capital allowance and research and development (R&D) relief which your business might be eligible for. Consult your accountant to see if your business qualifies.
What Tax Agility offers
The financial and regulatory requirements of a new startup can seem daunting to a new entrepreneur. Passion may not be enough to get you through, but a competent and trustworthy accountant can help. As local London accountants for small businesses, Tax Agility can advise you on important issues and help you with accounting tasks such as:
- Assessment of your financial requirements, including advice on finance sources, introductions to banks and preparation of the necessary proposals
- Advice on the most suitable structure for your business – sole trader, partnership or limited company
- Advice on possible qualification for tax-efficient investment schemes such as the Enterprise Investment Scheme (“EIS”) and the Seed Enterprise Investment Scheme (“SEIS”)
- Preparation of your business plan, cash-flow projections, budgets, and trading forecasts
- Completion of registration with Companies House and HM Revenue and Customs
- Management of company secretarial services
- Advice on setting-up financial, management and record-keeping systems in compliance with statutory requirements
For more information or to get in touch regarding your start-up or small business, simply fill out our Online Form, or call us on 020 8108 0090.
This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.
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