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Once you have decided to start a second business, it is important to consider the legal and accounting implications not just for the second business but also to protect the first business.
Keep Separate Books for Your Second Business
Even if your second business is similar or complimentary to your first business, if you have decided to set up the business separately then you should keep a separate set of books for the second business, along with opening up a separate bank account. Doing this will mean:
- You can monitor the performance of your new business in isolation to your first
- Ensure that the right costs are included against the profits of the right company
- If you are VAT registered, it will avoid accounting for VAT on incorrect returns (which HMRC will be keen to check on in the event of an inspection)
- Keep your accounting records naturally more organised reducing accounting fees
Record Loans from Your First Company to Your Second Company
If you intend to take money from your first business to fund the start up of your second business, it may be in the best interests of you and your first business to record the money used as a loan. That way when your second company starts to make a profit it can pay the first company back.
You should consider the legal side of things when setting up your second business to ensure that your first business is protected. For example, in the event that the second business is not a success, you can set up your second business as a separate entity so that your first business is not liable for any of its debts. Or say you have decided to set up your second business with another person, you may want to set up an arrangement that will separate your first business from that person.
Setting up a second business is exciting but you should do all you can to protect your first business, so you always have it to fall back on so always seek professional advice if you are unsure.
Anita is a Chartered Accountant with over a decade of experience taking self employed business owners from financially confused to business savvy.
She is the creator of the ‘Go Self Employed’ website, which her corner on the internet where she makes self employment less terrifying.