We have a special guest on our Business Advice Series this week. Nicole Harney is an accountant with 13 years’ experience working in a range of companies across the country. Nicole has spoken with many small business owners and understands the fear that many feel when it comes to getting on top of their financials and how it ends up being rushed to meet deadlines. She wants her clients to feel relieved when she takes over their financials. She is approachable and her clients know that she is here to help at any stage not just for tax compliance. She is passionate about supporting small businesses, adding value and aiding better decision making. She also takes out all the technical jargon and talk to you in a way that helps you understand your financials. When not running her own business, she is running around after her 2 young kids and juggling life as a busy mum.
When considering the accountancy element of opening up a new business, Nicole shares her top 5 things to think about:
Decide what business structure suits your business best
Should you set up as a sole trader or a company? A sole trader is the legal and financial owner and is responsible for the debts of the business. It is very simple and straightforward to set up and ongoing accounting costs are usually quite reasonable. There are also fewer legal obligations and the only return that needs to be filed is the annual tax return. Profits of the business are taxed at the marginal rate of the business owner. Most small businesses start as a sole trader and then move onto a limited company structure as the business grows.
A limited company is a separate legal entity so the debts of the business are contained within the company. It is more complicated than a sole trader to set up and may need additional professional advice. Accounting costs are higher as there are multiple runs to be done with the CRO and Revenue each year. Profits are taxed at 12.5% within the company and the director of the company is taxed at their marginal rate on the money paid to them by the company. There is more detail on business structures in a blog post here.
You will need to register with the CRO, register for income tax with Revenue and separately register for a ROS account. A sole trader needs to register a business name with the CRO unless they are operating under their own name. It costs €20 and no further filings with the CRO are necessary. A sole trader also needs to register with Revenue for income tax and separately register for a ROS account. Registering for a ROS account is not necessary but it makes sense for a business owner to be able to access their own account including their tax clearance certificate.A limited company also needs to register with the CRO and Revenue. Most businesses use their accountant or a company formation company to do this.
Open a business bank account
I am often asked about whether opening a separate bank account is necessary as a business owner and I always say YES. It is best practice to have a separate bank account for your business as it gets really messy trying to decipher personal expenses from business expenses after a couple of months. Business accounts have a reputation for being very expensive. AIB and BOI offer 2 years free banking for start-ups. Alternatively you can go down the digital bank route of N26 and Revolut if you do not need to be able to access a branch to lodge cash or cheques. It is worth noting here that there is no protection for Irish Revolut customers at the moment due to licencing issues since Brexit. I don’t recommend Revolut right now but will look at it again when they get their Irish e-money licence. Further information on this can be found on Nicole’s blog here.
Familiarise yourself with the tax rules
As a business owner, you need to wear many hats. No one expects you to be an accountant overnight but it is really useful if you understand the basics of the tax rules such as what self assessment tax means, when you need to file a tax return, what expenses are tax deductible, when you should register for VAT etc. Having that basic financial literacy is so important to help you move your business forward and it removes the fear that a lot of business owners feel when it comes to their financials.
Develop a bookkeeping routine
If you can develop good financial habits from the start, it will greatly benefit your business. I encourage business owners to develop a very simple monthly routine. This includes recording all sales, payments received, all expenses, filing receipts, downloading your bank accounts and ensuring you know exactly what your financial position is at the end of the month. This helps you make better decisions as a business owner as you know what is working for your business and what isn’t.
For more tips and trick from our Business Advice Series, make sure to check out our blog.
Disclaimer: Please note that Legal Diaries is not a law firm. Nothing on this site, unless otherwise state should be construed as legal advice. Legal Diaries does not provide your or your company legal advice unless otherwise communicated. We simply provide legal information and education for you to customise and use on your own and have reviewed by your own Legal Counsel. Danielle and Aisling are Barristers at Law, members of the LSRA Roll of Barristers. Unless otherwise specified Legal Diaries does not establish a lawyer-client relationship with you.