New business: expenses before income
Discussion
This is probably just a veiled request for a kick up the ass and to man up, but I would be grateful for some advice...
I have set up a new business - my first, but have not yet left the bosom of full-time employment. I do have a wider-scale time line for this, which is not the issue. The issue, is I cant seem to rectify in my head start-up expenses/ how to begin. I've done a detailed business plan, and I know I need to buy some things up front (mostly computer hardware and software at this stage). I have the cash to put in the business bank account (which I detailed in my business plan as comprising the start up cash injection), and I can justify the outlay as true business expenses, but I am nervous to start spending without any potential work to offset it and a real idea if the business if ever going to get off the ground, except for my own desire to make it so.
Legally, is there any time limit for incurring an expense before "attempting" to offset it by bringing in some work? At this stage, regardless of new work coming in, I would use the new equipment to start building my business branding and ensuring what I want to do is viable technically. Is there a limit to what is deemed acceptable as start up expenses before a genuine company work profile is determined?
Alternatively I could use my old equipment and "pay myself back" at some time in the future via some form of expense claim (not ideal as it is all REALLY old). This form of incurring expenses might also include travel expenses to various seminars, meetings, etc., too. Is there a limit to this as well?
Any advice, goading for being a big jessie, etc., gratefully received. I know all you bearded company directors are a friendly bunch really...!
I have set up a new business - my first, but have not yet left the bosom of full-time employment. I do have a wider-scale time line for this, which is not the issue. The issue, is I cant seem to rectify in my head start-up expenses/ how to begin. I've done a detailed business plan, and I know I need to buy some things up front (mostly computer hardware and software at this stage). I have the cash to put in the business bank account (which I detailed in my business plan as comprising the start up cash injection), and I can justify the outlay as true business expenses, but I am nervous to start spending without any potential work to offset it and a real idea if the business if ever going to get off the ground, except for my own desire to make it so.
Legally, is there any time limit for incurring an expense before "attempting" to offset it by bringing in some work? At this stage, regardless of new work coming in, I would use the new equipment to start building my business branding and ensuring what I want to do is viable technically. Is there a limit to what is deemed acceptable as start up expenses before a genuine company work profile is determined?
Alternatively I could use my old equipment and "pay myself back" at some time in the future via some form of expense claim (not ideal as it is all REALLY old). This form of incurring expenses might also include travel expenses to various seminars, meetings, etc., too. Is there a limit to this as well?
Any advice, goading for being a big jessie, etc., gratefully received. I know all you bearded company directors are a friendly bunch really...!
If you can do the work perfectly well with what you already have then you don't need to buy new stuff. As you say you can grow the business organically and re-invest profits if you wish. I agree you will feel happier spending 'new' money rather than digging into your personal savings.
Or you could buy the new kit now but not 'introduce it into the business' until you want to. In other words, the kit is for your private use until it becomes a business asset. At the stage you bring it in, then you can start accounting for it. Presume VAT isn't a factor yet.
As you are cautious like me, I would say only spend what you have to, when you have to. But don't let this caution hamper the business. Your main priority has to be getting work and making profits, the kit can trot on behind UNLESS of course you have to buy something to do a job.
Or you could buy the new kit now but not 'introduce it into the business' until you want to. In other words, the kit is for your private use until it becomes a business asset. At the stage you bring it in, then you can start accounting for it. Presume VAT isn't a factor yet.
As you are cautious like me, I would say only spend what you have to, when you have to. But don't let this caution hamper the business. Your main priority has to be getting work and making profits, the kit can trot on behind UNLESS of course you have to buy something to do a job.
I've got to say I worry a little for you with the way you are talking. Your mindset seems all wrong for starting a business.
It's just opinion but heres my view on the issue:
1) THe fact that you are even contemplating spending money on computers and things as a "start up expense" without any turnover despite the fact you have perfectly functional ones already that you could 'lend' to the company suggests your priorities are all wrong. TO answer the question, of course you shouldn't spend money on things that you don't need.
2)The fact that you are putting your toe in without having any confidence it will work is even more worrying.
For the motivation to commit yourself as much as you need to you simply have to have confidence that it will work.
It's just opinion but heres my view on the issue:
1) THe fact that you are even contemplating spending money on computers and things as a "start up expense" without any turnover despite the fact you have perfectly functional ones already that you could 'lend' to the company suggests your priorities are all wrong. TO answer the question, of course you shouldn't spend money on things that you don't need.
2)The fact that you are putting your toe in without having any confidence it will work is even more worrying.
For the motivation to commit yourself as much as you need to you simply have to have confidence that it will work.
OP When I set up DST I was working as a sales director for a small company, I used to go home at lunchtime to pack parcels and post them, then DST got bigger and I had two staff working out of my flat!! I got to a shop and still had not given up work as it was a good business that could afford staff. Only when we moved to a big unit in 2005 did I have the balls to give up a pretty big job (I had moved to Invensys by then) and a six figure salary to earn sod all for myself (I didn't know that at the time). With hindsight I should have quit earlier as my foundations were shaky but its no issue working until your crawling yourself - you will know when to leave. If you want a chat PM me.
NOTE keep all receipts in case you go VAT reg and can claim the vat back.
NOTE keep all receipts in case you go VAT reg and can claim the vat back.
Hi - thanks for all replies. I think my question was really: what is the best way to incur a business expense before making any money? Or does it actually not matter in the slightest, provided I just go out and start working towards being a profitable company!?
To explain a little more with the responses so far given:
Eric - it is LTD.
BSR - I'm not sure my mindset is wrong, but I think I got bogged down with this chicken and egg routine in my head of my own making and I needed a break, which probably came through in my post last night and actually is also partly the reason I posted. I realised I needed a nudge back into reality!
Everyone - Totally agree not to spend unnecessary money. But with that in mind....
e.g. the computer (although the same example could be any expense a start up may encounter); I do actually need a new computer to start my venture off - my old personal one can't cut it for the programs I need to develop and I don't want to abuse my work position by using my current work computer despite it having the oomph I need. I could buy this now as a personal computer and do all this in my free time - as i would be doing anyway as I intend to remain employed a little like DSLiverpool - and maybe as Simpo Two suggested, cost it back to the business at a later stage or write it off. Or I could gift savings from my personal bank to the business bank as a start up loan and use it to buy the computer. This puts the business in a negative state straight away, but at least it is all through a structured entity (have no need for personal use of computer). My question then would be if I took the second route, how long can I carry that negative state without gaining from the expenses - I'm sure HMRC must want to see some "reason" the business has been spending money..?
Probably a stupidly easy question, but a source of odd (and uncharacteristic) angst for me that I couldn't resolve.
I do hope that explains it better and thanks again for everyone's input.
To explain a little more with the responses so far given:
Eric - it is LTD.
BSR - I'm not sure my mindset is wrong, but I think I got bogged down with this chicken and egg routine in my head of my own making and I needed a break, which probably came through in my post last night and actually is also partly the reason I posted. I realised I needed a nudge back into reality!
Everyone - Totally agree not to spend unnecessary money. But with that in mind....
e.g. the computer (although the same example could be any expense a start up may encounter); I do actually need a new computer to start my venture off - my old personal one can't cut it for the programs I need to develop and I don't want to abuse my work position by using my current work computer despite it having the oomph I need. I could buy this now as a personal computer and do all this in my free time - as i would be doing anyway as I intend to remain employed a little like DSLiverpool - and maybe as Simpo Two suggested, cost it back to the business at a later stage or write it off. Or I could gift savings from my personal bank to the business bank as a start up loan and use it to buy the computer. This puts the business in a negative state straight away, but at least it is all through a structured entity (have no need for personal use of computer). My question then would be if I took the second route, how long can I carry that negative state without gaining from the expenses - I'm sure HMRC must want to see some "reason" the business has been spending money..?
Probably a stupidly easy question, but a source of odd (and uncharacteristic) angst for me that I couldn't resolve.
I do hope that explains it better and thanks again for everyone's input.
If you need it for the business then buy it through the business. It has nothing to do with hmrc and if you company makes a loss from it then so be it. Hmrc have not lost anything and you are perfectly entitled to buy it as a legitimate business purchase. I don't understand why you think they may have a problem with it
There is no problem with buying a computer for the new venture. You want a fresh start and something fast and responsive with good screen space will help that. Just buy it personally and keep the receipt. When the company starts to earn then claim it back.
Good luck. Nothing ventured, nothing gained.
Good luck. Nothing ventured, nothing gained.
NorthDave said:
There is no problem with buying a computer for the new venture. You want a fresh start and something fast and responsive with good screen space will help that.
There is indeed the psychological angle, especially if working from home. New start, shiny new computer and every time the OP sits down at it he will think 'business' not 'games' and hopefully be more focused as a result.My basic rules
1) If you need it to do the job - buy it on the company
2) If you don't - don't
3) If you can use your existing personal equipment - do
4) If your existing personal equipment breaks and you need to replace it - buy it - see 1)
5) when your business is making a profit and you *want* to no longer use your personal equipment - see 1)
I went IT contracting in 2008 and bought a new laptop - I didn't have one and needed it to do my job. Since then it has been upgraded to windows 8 and a SSD drive. It still does the job.
Instead of paying 1000 quid on a new laptop , I spent 200 quid to upgrade it and paid tax on the 800 quid I got as a dividend.
I prefer that the tax man I get something each, than Currys get all my money for a laptop
1) If you need it to do the job - buy it on the company
2) If you don't - don't
3) If you can use your existing personal equipment - do
4) If your existing personal equipment breaks and you need to replace it - buy it - see 1)
5) when your business is making a profit and you *want* to no longer use your personal equipment - see 1)
I went IT contracting in 2008 and bought a new laptop - I didn't have one and needed it to do my job. Since then it has been upgraded to windows 8 and a SSD drive. It still does the job.
Instead of paying 1000 quid on a new laptop , I spent 200 quid to upgrade it and paid tax on the 800 quid I got as a dividend.
I prefer that the tax man I get something each, than Currys get all my money for a laptop
What you need to do is this:
1) Get a customer.
Day 1 of customer project involves procuring equipment needed for that job. You then have two options, ask customer for a deposit/stage payment on project commencement to pay for materials (or whatever), or take the risk that they'll pay all the money on project completion and you take the hit of materials/equipment until pay day.
1) Get a customer.
Day 1 of customer project involves procuring equipment needed for that job. You then have two options, ask customer for a deposit/stage payment on project commencement to pay for materials (or whatever), or take the risk that they'll pay all the money on project completion and you take the hit of materials/equipment until pay day.
Thanks again everyone! Momentarily lose of bearded director balls now restored!
As a follow up though:
I did do my homework on setting up a business - I've been reading for weeks - but I think it does still necessitate a mindset change, from an individual tax point of view to that of a business. This is an example of that. I knew the "rules" but it still felt too good to be true and it was good to tap into a group who had been there once before.
lestag has an interesting viewpoint and I'm inclined to agree with it. I appreciate "Simpo Two's thought as well that a certain amount of psychological warfare must also come into play and if something helps to switch on the 'business' mindset then it is worth investing in.
I moved forward today, inasmuch as I went to move funds into company accounts and also spoke to an interesting young marketing firm that I hope can work with me to advertise my business venture. via interweb and other media So, things are coming along, which is pretty cool!!
As a follow up though:
I did do my homework on setting up a business - I've been reading for weeks - but I think it does still necessitate a mindset change, from an individual tax point of view to that of a business. This is an example of that. I knew the "rules" but it still felt too good to be true and it was good to tap into a group who had been there once before.
lestag has an interesting viewpoint and I'm inclined to agree with it. I appreciate "Simpo Two's thought as well that a certain amount of psychological warfare must also come into play and if something helps to switch on the 'business' mindset then it is worth investing in.
I moved forward today, inasmuch as I went to move funds into company accounts and also spoke to an interesting young marketing firm that I hope can work with me to advertise my business venture. via interweb and other media So, things are coming along, which is pretty cool!!
I went ltd 5 weeks before the business had any income, so I made an expenses form, and filling in 5 weeks worth, and submitted it to my business.
I was lucky in that I was being paid in lieu of notice after redundancy for 3 months, so I didn't pay any salary to myself for 3 months, but as soon as there was money in the business account to cover the expenses thus far, the ltd company paid me.
Assuming that you "lend" the company money for more than a year, and incur expenses, which it can not afford to pay you back, you'll just post a loss, in the 1st year, and the money it owes you, will show in the accounts. Eventually the business will start to make money, and can pay you your expenses.
I was lucky in that I was being paid in lieu of notice after redundancy for 3 months, so I didn't pay any salary to myself for 3 months, but as soon as there was money in the business account to cover the expenses thus far, the ltd company paid me.
Assuming that you "lend" the company money for more than a year, and incur expenses, which it can not afford to pay you back, you'll just post a loss, in the 1st year, and the money it owes you, will show in the accounts. Eventually the business will start to make money, and can pay you your expenses.
jammy_basturd said:
Day 1 of customer project involves procuring equipment needed for that job. You then have two options, ask customer for a deposit/stage payment on project commencement to pay for materials (or whatever), or take the risk that they'll pay all the money on project completion and you take the hit of materials/equipment until pay day.
Depending on the business it could be perceived as rather amateur to ask for money up front, especially if a start-up. For all they know you're going to do a runner with it. Always look professional first, and if you have to dip into savings to buy something then do so; you simply square it up later in the accounts.I started with a pot from savings of £2,000, and the only thing I really needed was a fax/phone (about £600 then!). I've been in the black ever since. Your liquidity should not be your clients' problem.
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