Running a Small Business

Business Structure

There are three main types of business structures: sole trader, partnership and limited company.
A sole trader is the simplest form of business structure, it is easy to set up and requires few legal formalities.
Partnerships are businesses owned by two or more people who share decision-making and profits. They are responsible for all business debts.
A limited company is a separate legal entity to its owners. The owners are only liable for the company’s debts up to the amount they have invested.

Working capital is the funds needed to cover the cost of operating the business.
Sources of capital may include personal savings, bank loans, crowdfunding, grants and investment.
Balancing income and expenditure is critical. Businesses should aim to have more income than expenditure to avoid financial difficulties.

Maintaining accurate financial records is critical for monitoring business performance and planning for the future. This includes sales invoices, purchase invoices, bank statements, and so on.
Bookkeeping is essential for meeting legal obligations like paying taxes and can also provide valuable information for business decisions.

Businesses create a profit and loss statement to illustrate their financial performance over a specific period.
The statement summaries income, expenses and calculates the net profit or loss.
The gross profit margin and net profit margin are important indicators of business profitability.

A cash flow forecast demonstrates how much money a business expects to receive in, and pay out, over a period of time.
It is important for planning ahead and ensuring there is enough cash to cover the outflows.
Regularly updating the forecast and comparing it to actual cash flow is crucial for spotting any financial problems early.

Income tax, corporation tax, VAT, and business rates are some of the taxes that small businesses may need to pay.
It is important to comply with all tax obligations to avoid penalties.

Financial ratios, such as the current ratio and quick ratio, are used to assess the financial health of the business.
Non-financial indicators, such as customer satisfaction and staff turnover, are also important for assessing business performance.