112. Mastering Business Finances: Startup Structures to Financial Success ft Joshua Akinbohun

In this week's episode, we discuss setting up and managing your business finances with finance coach Joshua. We also discuss the implications of operating as a sole trader vs a limited company and the importance of forecasting potential business earnings. 

• Pre-order 'How To Handle Money' - https://amzn.eu/d/gjomK0T

FOLLOW JOSHUA:

• Instagram - https://www.instagram.com/financebykilolu/
• TikTok - https://www.tiktok.com/@master.money.uk?_t=8oyRLB4EYtN&_r=1

Chapters

• 0:00 Understanding Business Structures and Finances
• 8:02 Managing Business Mindset and Finances
• 17:53 Navigating Business Finances and VAT

Transcript

Speaker 1: 0:00

Hey guys, and welcome back to the Penny to Pounds podcast with your host, kia, and this is the podcast we're in to dispel your myths, simplify difficult financial jargon and rectify your own personal problems. Happy Monday, everyone, and I'm happy to bring you another amazing episode, and this episode is gonna be on something very interesting. We're gonna be talking about understanding your finances. But when it comes to setting up a business, there's a lot that goes into starting a business. To setting up a business. There's a lot that goes into starting a business, whether it's understanding how you want to set up your business, what that looks like financially and also that big T word I'm talking taxes and to do that I've got an amazing guest. But before I get into the episode, I've got an exciting announcement. For about how long is it now Maybe about seven months now I've been holding this secret and it is probably the longest time I've ever held something. I can finally talk about it.

Speaker 1: 0:48

I have my first ever book coming out. I've been writing for months and months and months, but I finally got my copy. It is called how to Handle Money, written by me, and it is pretty much your beginner's guide when it comes to understanding your finances. Chapter one starts all about saving, understanding the different places you can put your money, all the way up to chapter six, where we talk about taxes, national insurance, your pay slip and everything in between. This. I put my heart and soul into this. I hope you enjoy it. It is available for pre-order right now on Amazon. The link is in the episode description and also anywhere on pennies and pounds in our bio. So please do check it out on pennies and pounds in our bio. So please do check it out. I'm so happy to finally talk about it, so don't be surprised if you see me bang on about it for all the episodes to come. But yes, my book is now available to purchase how to Handle Money. Now back to your episode. So I have an amazing guest Guest who are you?

Speaker 2: 1:37

Yes, my name is Joshua. I'm a finance coach and I help people understand a bit more about credit, business and taxes as well. How?

Speaker 1: 1:44

long have you been doing this in Joshua?

Speaker 2: 1:45

Yes, I've been doing this just over two years. You know, surprisingly, actually started in July, august 2022. So it's been over two years and, yeah, it's been a wonderful journey.

Speaker 1: 1:55

It's been a good journey, right. Yeah, I feel like you're very passionate about finances, like I am. This is my thing, my jam. The thing that gets me excited, you know, to wake up in the morning. I love talking about finances and we're talking about businesses today Now. I have said before, but I started my first ever business at nine years old. Nine, I mean I didn't know all the things that I know now, when it comes to business but my first business was summer holidays.

Speaker 1: 2:19

My mama taught me how to knit, so I practiced over summer. Obviously, you don't need a scarf during summer, but when I went back it was autumn.

Speaker 2: 2:26

So I went in.

Speaker 1: 2:26

I'd go in. Tell my school friends, do you want a scarf? They say yes, tell me what color they wanted. Give me one pound. I'd go home on the way home from school. If I didn't have the color at home I would help me buy from for hours on end knitting my scarf and bring it in the next day, and that's how I started making money at nine years old. So I've been doing business for a little minute, a little minute. However, when we come to talking about business in the real sense so in the real world that's completely different to nine-year-old me there's a lot more that goes into it. So, before you start up your business, what are the crucial steps that you need to take when it comes to actually creating that business?

Speaker 2: 3:05

Yeah. So, and I would say the first thing is even checking that your business will actually, you know, be in demand or meet people's services. So, whenever you do have an idea, just ask, you know, ask a friend, ask a few people, do your best to try to speak to people that are not even your friends as well, non-family members as well and just push your idea out there and if you're getting demand, then you can, you know, consider taking it um a step further. Um, that's the biggest thing I'll say, because, again, um, you can have an amazing idea, but if no one wants it, then there's absolutely no point getting started.

Speaker 1: 3:36

There's no point. I think business is such a hard thing.

Speaker 1: 3:39

Yeah, that essentially what you described there doing market research, checking that so important you know there is a gap for you in that market, that people actually want what you're trying to sell. Yeah, right, because many people have tried this, trying to set up businesses, because it sounds amazing in their heads and in reality everyone's like I don't really want to buy that. You might get a few sales from friends and family who just want to kind of help you out, but realistically, there is no market. So Realistically, there is no market. So understanding who you're trying to sell to is the most crucial part before you get started. Yeah, so important. Now, I think the next thing then is looking at how you want to set up your business.

Speaker 2: 4:11

Yes.

Speaker 1: 4:12

Right, there are many different ways that you can go about it in terms of structures If you're just doing it by yourself or if you're going into partnership with someone else. So can you describe the different structures that you can choose? And maybe that's the main thing about your structure?

Speaker 2: 4:25

Yeah. So even just again going a little bit back into market research, just looking at, because you kind of want to forecast how much you think you can even make, and that usually determines a lot whether you want to set up as a sole trader or actually open up a limited company and do things a bit more officially. Now, a limited company does take more. You usually would always almost 99% of times unless you're an accountant yourself, you would want to get an accountant to help you make sure that everything is fine. But again, once you have the information that this thing will make money, that's when you should think about doing it. But if you just want to, you know, test things, which I assess most people should do. Test things, take things slowly.

Speaker 2: 5:05

The best business step is definitely going to be as a sole trader, which is self-employment. You don't need to register with HMRC unless you make over a thousand pounds within a tax year. So again, even let's say you start, you make 200 pounds and nothing picks up, for the rest, you know the next eight months, then at least you know OK, cool, cool, I tried, it didn't work. I don't have to, like you know, file taxes with hmrc or do all these other stuff, um. So that's critically, critically important, um.

Speaker 2: 5:29

But then if you did make over a thousand pounds, now you need to tell hmrc that you are actually trading an official business and then from there, um, consider you, and it depends on how, how much time you have, whether it's a side hustle or, you know, an official business, or, when I say official business, if it's your full-time thing. Essentially, that's what I mean. If you don't have time, if you're time poor, highly recommend getting an accountant. But if you can, you know, put a bit of time into learning how to book, keep and like, keep records of your own transactions, then, um, maybe consider doing a sole trader setup. But if you want to make money, if you want to do this full-time, always recommend getting an accountant and helping, asking them to help you do things properly.

Speaker 1: 6:07

And yeah, life will be a lot more easier because your business is.

Speaker 2: 6:10

it's not easy. There's a lot to it. Not easy in the slightest. As you want to grow, you need more people 100%.

Speaker 1: 6:15

So yeah, okay, amazing. So self-employment, like you said, is sole trader, so that you're working for yourself.

Speaker 2: 6:28

Yeah, once you earn over a thousand pounds a year. That's when you start reporting to hmrc.

Speaker 1: 6:29

But any earnings under that, you don't actually need to tell them that you're trading absolutely fine, yeah, absolutely fine. Then what? If we look at partnerships, then that's another structure. What does that look like and what does that entail?

Speaker 2: 6:36

so partnerships are very similar to being a sole trader, but of course you're just working with someone else. Um, I usually wouldn't advise it for most people because it usually turns out that it's just not the best structure for most people. But again, it's usually a very bespoke business setup that if you ever did want to do a partnership, um, just speak to an accountant to see whether what your idea and what you want to do makes sense. But again, once you've got the market research done and you know this, that this thing can make money, um talking to an accountant if you want to do a partnership or a limited company or just a sole trader, um, and just see which one works for you. So getting advice in the beginning is getting advice is.

Speaker 1: 7:11

I think, yeah, that's a crucial message is, unless you really know what that looks like for you. Unless you have some sort of experience, then go and seek some advice to see what's going to be the best setup for you, definitely, definitely. Before we kind of move on to a bit more the financial side, I want to talk about another element that's equally as important and that is mindset oh yeah you and I spoke off camera about mindset a little bit and it's such a crucial part that people don't really talk about when it comes to starting a business.

Speaker 1: 7:36

People want to become business owners for many different reasons to give them, afford them more time to live a different lifestyle. Many different reasons, but a lot of the success is obviously what big part is? Hard work. Yeah, a big part might be your network or finding the right target audience. Another big part is going to be a mindset, because I feel like you and I both know that there are some really high highs, but there are also some really low lows. So talk us a little bit more about mindset. What does that look like when it comes to starting up a business?

Speaker 2: 8:04

and it depends on your journey how you get into it. So for most people that are traditionally going to be an employee first and then try to get into business, having an employee mindset will most probably not work for trying to start your own business okay, so let's stop there and break that down.

Speaker 1: 8:18

What's an employee mindset then?

Speaker 2: 8:20

so with employment, what usually happens is that, especially if you've done it for years, you do work, you're given work, and then you know that you're going to get paid. With business, it's different. You could get paid immediately, you know happy days, but you should also be willing to not get paid for months and even a year, knowing that what you're doing is going to. It's almost like you have to know that you're sowing seeds to reap them whenever you know the harvest or the fruit come, comes about. But, um, you know, yeah, switching from an employee to a business owner straight away, a lot of people struggle with just the difference. You know, having to do things yourself, motivating yourself, um, doing extra stuff that you didn't normally think you would have to do, um, innovating as well. There's so much to it, um, and it more so depends on. It's almost like you're more front facing to the market, whereas before you were like within a team and you were almost shielded from, like the the front front scene. So, yeah, it's huge.

Speaker 1: 9:17

Mindset is, oh, it's critical such a massive part and I love the fact that you said you had to shift because I was started pennies to pounds at 21 and I was at university, working part-time at a job. And then when I decided to take this as my full-time gig, cause I had that risk-taking element in me and I was like I'm going to do this, I'm fresh out of uni, living at home.

Speaker 1: 9:37

I can take that risk. There is that massive change, right, and on the one hand, as a 21 year old, not having to wake up early for work was a plus, fabulous. Then, when you get to the end of the month and you realize that you, there's nothing actually coming in, yeah, I'm like huh, yeah, okay, now what do you do? Yeah, and there is a lot of that, like I said, that motivation that usually would come from if you are working a job. Yeah, you have to be motivated because you want to get paid. So you got going to work. Yeah, right, yeah, when you work for yourself, no one's on your back saying have you done this, have you done that? You can sleep in and you know what.

Speaker 1: 10:08

There used to be times where I'd wake up at 1 pm. Do you know what I? I can say that because it's not me anymore. Yeah, I used to wake up at 1 pm, 11 am, just whatever time. I felt like, yeah, because I could. Yeah, and it was only probably about a year or two in when I said this is I remember one day I woke up and I looked at the time. I said I'm wasting away my days for no reason, yeah, and I had to enforce a wake-up time so now I've been.

Speaker 1: 10:29

I've had that for years. I wake up at 7 am every day, okay, even if I don't have anything, it's just to give me that routine that you'd usually get if you're in employment, exactly to give it to me as someone who's self-employed exactly so, it's a massive part, massive. What would you say to someone who's like oh, do you know what? How do I develop that kind of mindset like? We explained what that mindset looks like, but how do I actually create that for myself?

Speaker 2: 10:49

the hack, the easy things, to find someone that's done it or doing it and just be under them or shadow them or learn from them. So, thankfully for me, um, my first or it was my second job my first ever real job was, um, with someone who was literally just starting up his own business. So I was literally the second person in the whole business. So I saw his business go from literally two people all the way to like 10, 12 employees. So thankfully, I was able to just see and understand what was going on.

Speaker 2: 11:16

At the time. I didn't understand the mindset piece of it, but at least I could just see that this person was acting very differently to how most people were acting. And only now, looking back you know, reflecting and really doing it myself, have I been able to realize that there were so many things that he was doing that I just wouldn't have been able to pick up on. So for someone that's just thinking, ok, how can I do it? You ideally want to get close to someone that's doing it and, whether they've got a mentorship program or coaching program, you know, or a course, enroll for it, learn from them. And the closer you can get to them the better, because again, you're going to have questions, you're not going to know what to do, and or even a community as well will be helpful as well.

Speaker 2: 11:54

So a course, a membership or a community, having a place to ask questions and just knowing that there will be different things that come your way. So you need to, because you can't do it all by yourself. You need to at least have someone to bounce off of, and then from there you should be able to just see that it's a journey you will never arrive. You just keep getting better every single day.

Speaker 1: 12:14

Such a journey and I think it's so important to have that community of fellow business owners and people who are looking to improve themselves in that way around to keep you motivated and grounded. So let's come back to the finances of it, then Taxes A massive thing when it comes to business, probably probably the biggest shocker that I ever got when I properly started my business yeah was tax yeah what is the immediate things when it comes to taxes that new business owners should be aware of?

Speaker 2: 12:42

so again, if you're literally just testing your business, if it's a side hustle, you're not making over a thousand pounds, you're usually going to be fine. But once you start making, you know over a thousand and even more. There are a lot of tax laws. There's rules, there's things that you probably don't think it's important. But you could just end up stepping on a bomb and like kaboom and you just find, oh my days, this tax bill is absolutely crazy and hrc will just send you a letter and you're all over the place thinking I ain't got this money or I never spent this.

Speaker 2: 13:07

To come up, and you know, just to avoid that, I would highly recommend getting an accountant and just to make it. You know very simple, very basic. The key thing about taxes is what you want to understand is that it's usually going to be your profits that ends up getting taxed. So if you make, you know £10,000, you won't get taxed on that whole 10 000 pounds. It's more so your income minus your expenses, which gives you your profit figure and from your profit figure you can calculate how much tax you're going to pay. That's the simplification. It is definitely more complicated than that, but at least knowing that on the beginning is that income and expenses, your profit, profit gets taxed.

Speaker 1: 13:41

That's just going to help you navigate this ocean of business it is such a wide ocean a massive ocean when it comes to business and I I completely second what you say in terms of getting an accountant. Yeah, probably the best thing I've ever done for business. There's a lot of things that I'm very good at. Yeah, accounting is not one of them, so I believe in outsourcing the things that you're is not your strong suit, I can probably learn it yeah but that will take me more time than just finding a professional.

Speaker 1: 14:04

so that's what I've and it's the best thing I've ever done. So 100%. I completely second that. What would you say is some good practices. So if it's someone like myself, then who's got a business and saying right, my business is doing all, right, I'm earning some money, for example, no-transcript.

Speaker 2: 14:36

simplest way to manage stuff is to know that, as in basically, if you've got a company, as a company and as an individual you are separate entities. So what you want to do particularly you've got, you know, a bank account you want to open a business bank account and use that for business, then have a personal bank account and continue to use that for your personal life. So if, for example, you live in London and you're paying a mortgage, your personal bank account should be paying for your mortgage. You shouldn't be using your business account for your mortgage payments. Why? Because it's not a business expense. It's not helping your business grow, although some people are like, yeah, it does, I use it at work. It's like. No HMRC will say this is not a business expense. So having the habit of using a business account for business and personal account for personal expenses is the most important thing to get into. If you ever get that wrong in the beginning and you just continue doing that headache.

Speaker 1: 15:25

So much headache. I was having a conversation with a friend recently and they just and I was like amazing, how, how is it doing? Everything's going really well, they're making some good money. And I think I asked them a question about their finances and they couldn't really answer them Like I'm not sure. And I said why don't you know? And then I said, oh well, it's just all in my, my one account. I said you mean your one business account? And I said no, my one personal. I said I don't know how I knew that from the jump, but the first thing I did was open up a business account. I think maybe I just felt like a big girl.

Speaker 2: 15:57

I said 21 year old me says I have a business account. Yeah, I'm going to do business, I have the account.

Speaker 1: 16:01

But it was the best thing. And when I got my accountant because initially you know I wasn't making money, so I would use my savings to kind of claim that money back and you kind of move those funds again which a professional will tell you how to do yeah, but kind of move those funds around to reimburse you for the money you spent on the business because of the business expenses, exactly which is like the money in the account. Yeah, but having that separation and knowing right this like which is what I do, whatever's business because of a business account, whatever's my personal expenses is from here, and if you mix the two, it's just honestly way more headache than it needs, so important.

Speaker 2: 16:37

And, yeah, it makes your accountant's life easier as well. It makes your life easier as well. Just want to get into that a bit. And if you do ever make a mistake because it always does happen If, for example, you use your personal account for something that is business, what's usually advised by accountants would just be to take a picture of your receipt and then send it to your accountants and then from there they'll be able to claim it for you as a business expense, given it's an actual legitimate business expense. But yeah, habit business account for business, person for personal.

Speaker 2: 17:00

That's a really good one, you'll be so happy with yourself if you do that and get the habit.

Speaker 1: 17:03

It's really, really run from you. Yeah, it's important to build that habit. So, talking on the topic of business expenses, then can you give us a few examples of what actually are business expenses?

Speaker 2: 17:37

no-transcript equipment. So you know, podcast equipment, camera. If you use a space and rent it out, any rental payments for that space will be classified as a business expense. And again, if you're using your business account to pay for them, then your life is easy. But if you mix it and hmrc are now thinking why using a personal account for something that's a bit gray and something that's great, for example, something like, let's say, clothing?

Speaker 2: 18:02

You know, if you say that your clothing is for business but you can also use it for personal uses, hmrc will usually say that this cannot go through. So anything that has a duality of purpose or where it can be used for personal business just always want to be careful. So things like uniform or clothing are typical ones. Your use of home is something that falls into it as well. But HMARs, you have given an allowance where you can claim a certain amount every single week or even on an annual basis. But again, just to be super sure, anything that's not super obvious. But even if it is, just ask your accountant and they should be able to clarify to you exactly what you can't put through yeah, 100.

Speaker 1: 18:38

I think that is that's key.

Speaker 1: 18:41

Yeah, before you get confused exactly that's it yeah, before you get confused, just seek professional help. I think that's a running method message throughout this. Yeah, it's just yeah, seek help if you're not sure. Yeah, yeah, yeah, yeah, exactly. What about if we talking to business owners who are doing well? They're like you know what business is going really well? Yeah, you know I've made some good money. Yeah, so much so I've made over £85,000 in the tax year. Yeah, now I've been told I need to be VAT registered. Yeah, what does that mean?

Speaker 2: 19:10

So in 2020, the tax year that we're in now, 2024, 2025, they've actually increased it to £90,000 within a 12-month period. So before you make £90,000 within a year, you don't need to register for VAT. You can volunteer to register, but you don't have to. Once you make over £90,000, or even the official rules are, even if you assume that you will you need to register for VAT. So, with VAT, what I would say is you are usually going to need to charge an additional 20% on your goods and services. So if you were originally charging £1,000, rather than just charging £1,000, you charge £1,000 plus 20%, so £1,200 will now be the charge that faces your customers.

Speaker 2: 19:53

The tricky bit is, of course, as a customer, why would you want to pay an extra? You know 20%. As a customer, You're just like no, I want to keep my bills down. So that's usually a difficult bit to get through. But obviously planning before it, knowing, okay, cool, I'm making 70,000, now I'm getting closer, you should have a strategy to like transition into that. But then the benefit is that and this is I'm talking about the standard vat scheme. There are different schemes but again, not to confuse people the very common basic scheme is that you, so you charge an extra 20, but you can also reclaim 20 as well. So if you bought this mic, for example, and you were charged vat, so you paid an extra 20 to whoever you bought it from, you can then reclaim it on your back return. But again, h, not hmc. Sorry your accountants. I don't know if you should do this for you If you had to do your own VAT returns. Unless you're an accountant, you're just giving yourself way too much work.

Speaker 1: 20:42

Yes, way too much work, way too much. Not something that we'd advise or recommend yeah. Just leave it to professionals. But okay, think that's quite a quite a murky area for business owners. You know you do well, now you're told you need to be registered. What does that actually look like?

Speaker 2: 20:59

but, understanding.

Speaker 1: 21:00

That kind of simplifies it a lot more for anyone who wants to or ends up getting there in their business. Yeah, before we run off, then, what would be your top three tips or piece of advice to new business owners?

Speaker 2: 21:11

number one mindset, um, and and the fun, the funny thing, even relating this to like some of the ways I found success in my life is what I tend to do is whenever I jump into a new venture, I just binge content around that venture. So, but when I was growing up, I could not cook anything. I kid you know, I couldn't make anything like. All I could do was make cereal and toast. That's all that I had on my recipe list, literally. It was crazy, but I think I read a book. It was called Thinking Eat Yourself Smart Chained my whole mindset about, like, the importance of food. So I thought, let me learn how to cook for myself. I usually just watch YouTube videos over and over and, over and over again until I learn how to cook, literally. Almost. I wouldn't say almost anything, but literally I can make like all sorts, all sorts, and the only way I was able to do this was literally from watching people that were about it and just learning and practicing and doing it myself.

Speaker 2: 21:59

Left my job in 2022 to start my own business. I knew that I needed to binge business content. I needed to watch something else because I knew that I was, you know, very used to being an employee and I didn't really know what I was heading into. So, thankfully, when I gave him my notice I had three months before I actually had to leave. So I was just binging business related content and even you know I'm a free for the humble penny. I was binging their content. I'm rich and regular over in america. I was binging their content and that has helped me to like kind of understand a little and again a little bit of what it takes to like actually start a business. So, um, the yeah, consume different content if you haven't started. Consume different content if you're really, if you're in it, just consume more. Um, the mindset and then, yeah, community or people, having other people that you can, you know, bounce off or ask questions, are the three more support things I would say I love that.

Speaker 1: 22:48

There's some great tips, especially around the mindset community. Those are the ones that are really resonating with me huge 100 and, as always, we have penny spams business, so make sure you go over there. We have our community of entrepreneurs and business owners so you can learn more about your finances there. Thank you so much for being an incredible guest. Thank you for everyone listening and watching. Where can they find you?

Speaker 2: 23:06

I'm on Instagram. My handle is finance by kilolu, so finance by, and then K-I-L-O-L-U is my Instagram handle, so you can follow me there. And yeah, on my bio you'll see everything that everywhere else I'm on, so Telegram, tiktok and all these other platforms.

Speaker 1: 23:23

And we'll have all the links in the episode description as well, to make it even easier for you to find Joshua. Thank you so much for joining us. We'll be back again next week with.