Start my own business

Normally, the tax man is not synonymous with good news but on this occasion it means I’ve been full circle with the company. I ended up having to register it for VAT about 6 months ago. That was reasonably easy. Since then, I’ve filled in a couple of VAT returns, paid my first ever corporation taxes and this morning I filed my first company accounts with Companies House.

I’ve now gone through all the procedures and paperwork the company will require to operate normally so I can consider it well and truly started. If I’ve learnt only one thing over the past 21 months, it’s that a good accountant is worth his/her weight in gold and the fees they charge bear no relation to how good they are.

With my current contract, I now have a good enough cash flow to pay myself wages every month. I got the hang of it now and it’s all becoming routine. The next step is to get VAT registered. In the UK, under a certain annual limit in turnover, you don’t need to be VAT registered but I am now approaching this limit so it’s time to do it.

It took me longer to set up than I expected, mainly because I was out of the country earning money for the company, but I finally paid myself a salary for the first time. There’s no use in having a lot of money on the company’s account if your personal account is empty.

The way to do this in the UK is to set up a PAYE (Pay As You Earn) scheme for the company and then have a good accountant who can do all the calculations and send you a couple of payslips: one for you, one for the Inland Revenue that includes income tax and National Insurance contributions. Then it’s just a matter of doing a couple of bank transfers, making sure you have the correct reference on the one for IR. It’s all reasonnably straightforward.

It was good to be able to finally transfer money to my personal account as its balance was starting to get uncomfortably low after 3 months without income. The good side of this was that, for this one payment, I had very little taxes to pay because of this 3 month lack in salary. In practice, I could have done that quicker if I had really needed to but it is definitely something to take into account when starting a business: make sure you have some cash saved in case you can’t pay yourself immediately.

In the process, I discovered that HSBC, in all their wisdom, automatically open a savings account for your company alongside its business current account. There seems to be no snag in using it: you can take the money out when you need it and it gathers interest in the meantime. So I made sure I transferred some funds in there as well, to build up a cash cushion for when the times get rough or invest in growing the company when I feel like it.

Next on my list are to sort out BUPA and private pension. Oh and finding another customer to keep the company’s accounts healthy.

I have been back from the US for two weeks now. I am flying back out in another two weeks. In theory I was supposed to work with the UK/Maltese company I had been talking to but they changed their mind so I found myself at a loose end. I am not chasing them because we agreed that their reason for not doing work with me now was sensible so it’s not worth me wasting my time on this. They know where I am anyway so if they need me they can contact me.

Instead, I spent the first week back home concentrating on getting the invoicing process sorted. The first invoice I sent to my American customer last month was very straightforward as it was a fixed price item. The one this month is much more complicated as it is based on time and material. So it involves getting timesheets and expenses right. This is extremely important for the business to work properly: if I can’t invoice customers, I won’t get paid; if I don’t get paid, it doesn’t work. I’ve got that sorted now so it was time well spent.

Last week and this week, I’ve been doing some work with a London based company I know from my previous job. This particular assignment is paid less than I would normaly want but it is interesting, it can lead onto a lot more and I am confident those guys will be fast in settling invoices. I am discovering that how fast your customers pay you is extremely important at the very beginning of a business, more than how much they pay you. When you start, you need to kickstart your cash flow by getting some money in the bank. If you end up waiting 3 months for a big paycheck, it can be the death of the business, before it’s even started.

To summarise, the lessons of the past two weeks are:

• Don’t chase customers you’re very unlikely to do business with, even if the possibilities are potentially fantastic, concentrate on customers who want to do business now;
• Assess how quickly your potential customers are likely to pay your invoices and concentrate on those that pay quickly, even if they offer less money.

Of course, once you have your cash flow sorted, money coming in regularly and a few months worth of earnings stashed away in the bank, you can disregard those rules to net a big contract. I am not there yet but I think I’m on the right track.

I’ve been doing work for my American customer Tuesday and today. I didn’t do anything yesterday because of a bad cold. Anyway, I wasn’t expecting to do anything before being physically in the US next week so this is good.

Yesterday, I got some papers from Jordans, the company I created my company through and who act as my Company Secretary for the first year. They are not the cheapest on the market but they really know their stuff so it’s all been pretty smooth working with them. The papers I got through the post were the share allocation ones, that I signed and sent back today. I originally created the company with 100 shares and decided to allocate 51 to myself and leave the other 49 in the pot, in case I want to issue more to potential future partners. It doesn’t really matter if it stays a one person company but you never know. So, at £1 per share, I am now the proud owner and director of a company with a capital of £100!

Back to potential customers, I had a long call with the senior technical guy from the company that has offices in Malta that I had been talking to before. It sounds interesting and what they require is right up my street. Maybe I’ll end up visiting Malta when I’m back from the US.

Then again, this is all speculation because I also had a phone call from the guys in Saudi Arabia. They need help and it sounds urgent. My contact there is actually flying out tonight to meet me tomorrow and flying back Saturday! That’s a return ticket Riyadh-London and a hotel room booked at the last minute to discuss a key project! Then again, he sent me the requirements document and I do understand why they’ve got a problem now. Nothing impossible, you understand, just… difficult. If I ever work on that one, I’ll need a bullet-proof contract before I do anything, as they do like to argue the terms of a contract after it’s been signed over there.

After 11 years in the IT industry, I have learnt to become pragmatic and take things as they come. The amount of work that is generated as a direct consequence of something going wrong and needing fixing is scary. It happens even if you are extremely professional and try to do The Right Thing(TM). But then, who am I to complain? It looks like direct consequences of unfortunate events are going to pay part of my bills for the months to come.

Starting a company is good. Being paid by your own company so that you can pay your bills is better. In English law, with a limited company, there are two ways this can happen: as an employee of the company you can pay yourself wages or as a shareholder you can pay yourself dividends. Wages include national insurance and pension contributions so you definitely need some of that. Dividends are taxed less than high band wages so it’s good to have some of that as well. Hence the best solution is to have a combination of both. You could spend days calculating what is the ideal balance between wages and dividends to pay a minimum of taxes but as my accountant said: “Gordon (Brown) will get his money anyway”.

So I am now in the process of getting a PAYE (Pay As You Earn) scheme set up for the company and myself registered as an employee on that PAYE scheme. Hopefully I should be able to pay myself my first wages in February.

I went back to the bank yesterday to ask for the details I need so that I can invoice my customer in the US and they can pay me. What I need is simple: I need the relevant codes to enable them to send an international payment to my account. I had gone on Tuesday already but the answer I had got at the counter was not satisfying so I decided to ask a financial adviser. As I suspected, the actual answer is quite different.

In the UK, an account is given a 6-digit sort code and an 8-digit account number. The sort code identifies the exact branch where your account is held. The account number itself identifies the exact account in that branch. Those two pieces of information are all you need to transfer money from another account held in the UK. However, if you want to transfer money to your UK account from a foreign account, you need more than that and it can take three forms:

• IBAN, International Bank Account Number is an alphanumeric code that identifies the banking institution, country, branch and account. It has a standard format and is widely used in the European Union. In practice, IBAN for UK accounts include the sort code and account number but add more information to make it recognisable internationally.

• BIC, Bank Identifier Code, is an alphanumeric code that identifies the exact branch where your account is held, like the UK sort code, but is recognised internationally. To fully identify your account, you need to provide the local account number as well, like the 8 digit UK account number.

• SWIFT, Society for Worldwide Interbank Financial Telecommunication, is the organisation through which most international transfers are executed and it looks like they have their own codes to uniquely identify the branch where your account is held. Because SWIFT is a widely used international body, their codes are widely used as well. Like BIC, you need to provide your account number as well to uniquely identify the account.

I now have all those different bits of information for my business bank account and have included them on my invoice template. So no customer of mine should have any problem paying me. The first invoice is in the post.

I went to the bank today to ask them about my SWIFT code so that my American customer could do an international transfer to my account. I was told it was on my bank statement and that having the branch BIC code would not be enough, I would have to request my own SWIFT code if I didn’t have one. The first statement is definitely false. The second is I believe false as well because every payment software I have designed always needed a SWIFT branch BIC code and an account number so in theory the branch BIC code and the account number should be enough. I’ll go back tomorrow and talk to my account manager rather than the person at the desk.

Back at home, I called a friend who works for a Middle Eastern company my old company used to partner with. He is in a bit of a quandary because my old company ceased to exist just when he signed a contract to deliver a system based on our software. He can either contact the American company that took over the software (and for whom I’m going to Atlanta in 2 weeks time) or decide to build the pieces he needs from scratch. In both cases, he’s likely to want me to get involved, in which case I might end up spending some time in Saudi Arabia.

It never rains, it pours. So I am now in a situation where, if all the prospects I have become real contracts, I’ll have to refuse work. Or find a way to be in 3 different places at the same time.

It was a good day today.

I started the day by dropping at the bank to give them the last pieces of paperwork they were expecting to be able to fully open the business account.

I then had a meeting with guys from a company that is in the same space as my old company and who are currently recruiting. We had a very good meeting and they are interesting not only in doing business with me but also with the rest of the technical team I used to work with. As those guys are on short term contracts at the moment to perform technical hand-overs to the Irish company that took over some of our old customers, it might be a good opportunity to get their next jobs sorted.

When I came back home, I called my first customer, the American company that took over my old company and the whole reason why I am starting my own business now. I wasn’t aware of it but apparently I can already invoice them for being available for phone support during the month of January for one of the customers they took over. It’s not a huge amount of money but it will definitely help my cashflow. Fantastic! I’ll have to go to the bank tomorrow to get the SWIFT code of the branch so that they can transfer the money across the pond. I also need to sort out flights to Atlanta as they want me out there on the 23rd for a few weeks.

Then I called the CEO of another company I had seen before Christmas and who was interested in doing work with me as well. He still wants to do so, once I’m done with the work in the US, so I’ll talk to his head techie this week and I might even end up spending a couple of days in Malta to see their technical team. Just what I need: a couple of days in the sun, in a place I’ve wanted to visit for some time. And all in the name of business.

I am currently looking for a good way to manage customer projects, before I actually start getting into the nitty gritty of one. I came across Basecamp which looks like exactly the right type of software. What’s more, it is reasonnably priced and the people behind it, 37signals, are known in the industry for providing good quality solutions.