A small business is a big responsibility. Making the right choices early on will establish the security, efficiency and organisation that a business needs in order to grow. Before you launch your company, you should be aware of four key factors that could affect its success, and help with the smooth running of your new operation.
- Get your personal credit score as high as possible.
Particularly in its early stages, a small business will require loans. If your credit score is sub-standard, you’ll have to take out smaller loans at a higher interest rate. When starting a small business, you’ll want to have the bandwidth to borrow as much as is necessary. Therefore, it’s a matter of getting your credit score up to scratch.
Whilst exact numbers might vary, here’s an example of a general credit score breakdown.
- Excellent/very good: 700 to 850
- Good: 680 to 699
- Average: 620 to 679
- Low: 580 to 619
- Poor: 500 to 579
- Bad: 300 to 499
Whilst credit scores don’t lend themselves to a quick-fix solution – they tend to be the product of of long term borrowing practice – there are things you can do to help improve a credit score:
- Register to vote. If you’re not on the electoral role, you’ll find it harder to get credit.
- Check your file. Little mistakes can impact your score, so make sure all your information is accurate and registered correctly.
- Pay bills on time. Prove your reliability by responding when payments are due (even something like a phone contract can be used to show diligence)
- See who you’re linked to. If another individual’s credit rating is connected to yours through a joint account, their poor score might be affecting your own.
- Route out fraud. Somebody applying for credit in your name is a clear cause for concern. If you have reason to suspect fraudulent activity, make sure to update your file immediately.
- Reduce existing debt. If possible, eradicate or minimise outstanding debt before applying for new credit.
- Stay put. Evidence of living at the same address for a significant period of time is often appealing to lenders.
- Find the right accountant
Small business accountants provide invaluable advice on financial infrastructure and economic planning. A reliable accountant will allow you to delegate financial management as your company begins and grows.
Few small businesses have the funds to hire an in-house accountant. But technological progression has meant that, through the automated outsourcing of accounting processes, similar services can be procured at a lower cost.
There are many small business accountants based in London, but the best services will provide you with online accounting software and a dedicated personal assistant. Cloud-based applications make remote accounting a convenient option, and several services will offer packages tailored to the needs of a small business.
- Separate business and pleasure
Your personal and business accounts should be kept discrete. Failing to separate your personal finances from those of your business will be logistically and economically problematic. Not only will it be more difficult to keep track of expenses, manage the payment of employees, share details with investors and receive or deposit payments – not having a separate business account will prevent you from designating certain items as write-offs.
Whilst familiarity is appealing, when setting up a business account, don’t just go straight to the bank you’ve used as a consumer. Be sure to check out the competitors, as other account servicing options might offer more valuable expertise.
Know what you require before choosing a banking policy for your business. Think about what services you’ll need; whether it’s cash management or a balance transfer credit card, you’ll want to do some research before setting up a new account.
- Have affinity with your bank
The relationship between small businesses and banks has a reputation for being complicated. Applications for this year’s Future of Fintech awards were dominated by the observation that ‘small businesses are poorly served by banks’.
In September 2017, many small firms accused HSBC of freezing their assets or closing their account without notification. Small business owner Calan Horsman complained that the suspension resulted in his company losing a month in production schedule, as his stock was stuck in China. Kelly Molson, co-founder of a design agency, accused the bank of essentially shutting down her business without warning.
These potential tensions make it all the more important to choose wisely when it comes to small business banking. Make sure you check fees and compare facilities such as overdrafts, online banking, advice and overseas banking, before deciding who to bank with. It may be the difference between business collapse and economic take off.