Setting Up Your Finances When You're Just Starting Out

You're launching an online business. What financial foundation do you need from day one? A practical guide to starting right.

When you're starting a business, there are a thousand things competing for your attention. Building the product. Finding customers. Actually making money.

Finance often gets pushed to the bottom of the list. "I'll sort it out when I'm making real money," you tell yourself.

This is a mistake. Not because you need complex systems from day one—you don't. But because setting up basic foundations early is much easier than fixing a mess later.

Here's what you actually need when you're just starting out.

Choosing a Business Structure

In the UK, you have three main options:

Sole Trader

Best for: Testing an idea, very early stage, minimal revenue expected initially.

• No setup cost or process
• You pay income tax on profits
• No separation between you and the business (personally liable)
• Register for Self Assessment with HMRC

Limited Company

Best for: Once you're generating consistent revenue, or if you need credibility/contracts.

• Separate legal entity (limited liability)
• More tax-efficient above ~£30-40k profit
• More admin and compliance requirements
• Register with Companies House

Partnership / LLP

Best for: Starting with a co-founder.

• Partnership is like being multiple sole traders together
• LLP provides limited liability
• Need a partnership agreement

Our recommendation: If you're just testing an idea, start as a sole trader. It's simple and you can always incorporate later. If you're confident in the business and expect to make over £30-40k in profit, consider starting with a limited company.

Opening the Right Bank Accounts

This is non-negotiable: keep business money separate from personal money.

For Sole Traders

You can use a personal account legally, but don't. Open a second current account and use it only for business. This makes accounting vastly easier and looks more professional.

For Limited Companies

You must have a business bank account. The company is a separate legal entity and needs its own finances.

Good Options for Online Businesses

• Starling Business: Free, great app, good integration
• Tide: Free, invoicing built in, good for simple needs
• Wise Business: Excellent for multi-currency, cheap international transfers
• Mercury: Great for startups, especially if you have US clients (US account)

If you're dealing with multiple currencies, consider having accounts in each currency you use regularly. This avoids constant conversion fees.

Accounting Software

Spreadsheets work when you have 10 transactions a month. They break down quickly after that. Get proper accounting software from the start.

Our Recommendations

Xero (from £15/month)

• Best overall for small businesses
• Great bank feed integration
• Lots of app integrations
• Good for growing businesses

QuickBooks (from £12/month)

• Solid alternative to Xero
• Slightly easier for beginners
• Good mobile app

FreeAgent (from £14/month, free with some banks)

• Great for freelancers and sole traders
• Built-in tax estimates
• Simpler than Xero/QuickBooks

Connect your bank account to your accounting software immediately. This means transactions flow in automatically, and you're not manually entering everything.

What Records to Keep

You're legally required to keep certain records. More importantly, good records make your life easier.

Keep Everything Digital

Physical receipts fade and get lost. Use a receipt scanning app (Dext, Expensify, or even just your phone's camera) to digitise everything immediately.

Records You Need

• All sales invoices (or transaction records from payment processors)
• All purchase receipts (everything you spend on the business)
• Bank statements (your software handles this if connected)
• Contracts and agreements
• Payroll records (if you pay anyone, including yourself a salary)

How Long to Keep Them

• Sole traders: 5 years from 31 January following the tax year
• Limited companies: 6 years from the end of the financial year

Setting Up Your Payment Processors

How you get paid matters for both cash flow and accounting.

Common Options

• Stripe: Best overall for online payments. Good API, reasonable fees.
• PayPal: Still useful because customers trust it. Higher fees, but good for buyer confidence.
• Shopify Payments: If you're on Shopify, this simplifies things.
• Wise: Good for receiving international payments.

Setup Tips

• Connect your payment processors to your accounting software
• Understand the payout timing (it affects cash flow)
• Set up notifications for payments and payouts

A Simple Monthly Routine

You don't need to spend hours on finance. But you do need to spend some time. Here's a simple monthly routine:

Weekly (15 minutes)

• Photograph any receipts you've collected
• Quick glance at bank balance

Monthly (1-2 hours)

• Categorise all transactions in your accounting software
• Reconcile bank accounts (match what's in software with what's in the bank)
• Review income and expenses
• Check you're on track for any tax payments

Quarterly

• Review profit and loss
• Make any estimated tax payments (if required)
• Review pricing and margins

The key is consistency. Thirty minutes every week beats a stressful weekend once a quarter trying to catch up.

Tax Basics to Understand

For Sole Traders

• Register for Self Assessment with HMRC
• Tax return due by 31 January (online) for the previous tax year
• You'll pay Income Tax and National Insurance on profits
• Payments on Account: HMRC may ask for advance payments based on previous year

For Limited Companies

• Corporation Tax on company profits (19-25%)
• Personal tax on salary and dividends you take out
• Company Tax Return due 12 months after year-end
• Corporation Tax payment due 9 months after year-end

VAT

• Must register if turnover exceeds £90,000
• Can register voluntarily below this (useful if you sell B2B or want to reclaim VAT on purchases)
• Adds complexity, so don't register unless there's a reason

Common Early-Stage Mistakes to Avoid

1. Mixing personal and business money: Just don't. Ever.
2. Not tracking expenses: You're probably missing tax deductions.
3. Ignoring it until year-end: Creates a massive stressful job. Stay current.
4. Not understanding your profitability: Revenue means nothing without knowing costs.
5. Forgetting about tax: Set aside money for tax as you earn. Don't spend it.

When to Get Help

You can handle basic bookkeeping yourself when starting out. But consider getting help when:

• You're spending more than a few hours a month on finance
• You're confused about what you owe or how you're doing
• You're about to cross the VAT threshold
• You're ready to pay yourself properly (salary/dividends strategy)
• You're scaling and need better systems

The right time to get help is before you're drowning, not after.

The Bottom Line

Starting with good financial foundations is one of the best investments you can make in your business. It doesn't require a lot of time or money—just a bit of intention and consistency.

Separate your money. Track everything. Stay current. These simple practices will serve you well as you grow from startup to sustainable business.