Finance and setup
From the legalities of setting up a new business to banking and cash flow, we’ve summarised the key information you need to know.
Ideas are the spark for a new business, but without a financial plan your fire will rapidly go out. From the legalities of setting up a new business to business banking and cashflow, we’ve summarised the key information you need to know.
We should remember that good fortune often happens when opportunity meets with preparation.
Click on any of the sections below to find out more information or use the arrow on the right hand side to move through the pages.Choosing an accountant and understanding accounts
Cashflow management
Legal structure
Business banking and fundingInsurance
Registration of practice
Money is a terrible master but an excellent servant.
Look for recommendations from other similar-sized businesses or friends. Interview at least three accountants before making your final choice.
Don’t choose an accountant on price alone. Think of this as an investment both in your future and peace of mind.
Can you develop a rapport with the accountant? You will want to have many open conversations with your accountant and they can be a big source of support on issues and concerns that you won’t be able to share with other members of your team.
An accountant is not a bookkeeper. Does the accountant have an in-house bookkeeper to
do this work to help keep your costs down or do you intend to recruit a bookkeeper?
Using an online accountancy system such as Xero or Quickbooks is a great idea as it gives you complete access and transparency on your financial situation. Sage is also widely used but considered by some to be less well adapted to online use. Ask any prospective accountant which system they would recommend and why.
Unlike the RCVS for vets, there are various bodies where accountants’ accreditation can be checked including:
ACCA Global
AICPA & CIMA
CIPFA
ICAS
Chartered Accountants Ireland
ICAEW
Chances are you don’t have much background knowledge of accountancy. Many local business enterprise agencies have courses available for start-ups that are completely free. Topics include bookkeeping, marketing, business planning and more. There are even courses on how to access funding through loans or grants. These are highly recommended.
An understanding of finance, in particular, is absolutely essential. Why?
VAT and taxesVAT and taxes are usually paid in arrears, so you need to ensure that there is sufficient cash in the bank to pay these taxes as they become due. In addition to VAT, you will pay corporation tax on business profits and personal tax on cash you take from the business.
The cash you take from the business as an owner can be structured favourably with your tax liability in mind. Tax planning (not evasion!) is an important part of business ownership.
CashflowCashflow can cause some businesses to fail even when they appear on the surface to be profitable. Controlling cash flow is a must.
From time to time, you will need to make financial decisions such as buying a large piece of equipment. By being aware of the financial implications and possibilities you can make better decisions – e.g. lease versus outright purchase and the potential return on investment for each model.
ProfitabilityBy understanding profitability, you can ensure that you take the correct actions to grow the business, either by controlling spending or increasing fees.
With greater knowledge, you can make better decisions without relying only on your accountant’s recommendations, as even a trusted accountant will not know the potential or limitations of your business like you do.
RiskRisk is something that all business owners have to learn to accept. Each month there will need to be enough cash at the bank to pay your staff, rent and drug bill. That is a huge responsibility. Knowing about finance will alleviate a lot of the worries and concerns and allow you to plan ahead of time to avoid a crisis.
If you don’t value your time, neither will others. Stop giving away your time and talents. Value what you know & start charging for it.
It’s easy to see cash coming in and be tempted to spend more generously. However, as a business owner, you have to think far ahead and consider what debts may become due before more cash lands in your account. Having a good grasp of when you are liable for tax or repeating payments that might land at a later date will help you manage cash flow.
Reports on online accountancy systems and your accountant can also help you to manage cash flow. As a rule of thumb vet practices will make a profit margin of around 20% – in other words only a fifth of what comes in is profit. There is significant variability though, with some surveys quoting 7-18% as the norm, and others quoting up to 25%.
Strategies for growing profit include:
Increasing the number of new clients
Generating more income from existing clients (due to the costs of acquiring new clients, this is often a more successful strategy)
Increasing efficiency by buying better and reducing unnecessary expenses
Developing a practice USP for which clients will pay a premium.
Reducing client attrition in order to benefit from the lifetime value of the pet
As you progress through this booklet it will become increasingly clear that so much of what you do as a business owner is interlinked – you are the conductor making sure that all the instruments are being played well and the outcome is to create sweet music (whether that is generating profit, healing animals or supporting employee satisfaction – or ideally all of these things!).
Coming together is a beginning, staying together is progress, and working together is success.
There are three main options to choose from: sole trader, partnership or limited company. Each has advantages and disadvantages, so let’s break them down.
As the sole owner of the practice, you can choose to operate as a sole trader. This is one of the simplest structures, with minimal paperwork involved.
The major disadvantage of this setup is that sole traders have unlimited personal liability, so you’ll be personally responsible for any business debts. Operating alone can also be more stressful and leave you with more roles to balance than operating alongside a partner or other company directors.
As a sole trader, you’re taxed as a self-employed individual so will need to file self-assessment tax returns yearly and pay income tax and National Insurance contributions based on the practice’s profits.
In a partnership, all partners share ownership of the business. An advantage of this setup is its flexibility, with less prescribed roles than a limited company. Working alongside a partner with complementary skills, like practice management experience, can also lighten your workload significantly.
However, a significant disadvantage is that liability is still unlimited. The business is not a separate legal entity, and partners are jointly responsible for any debts. While the flexibility of a partnership can be beneficial, it’s also highly recommended to have a legal partnership agreement drawn up to prevent any conflicts and protect each partner’s interests.
In terms of tax, partners are subject to income tax and taxed individually on their share of the practice profits as if they were sole traders.
A limited company is a separate legal entity, separate from its owners (shareholders) and its managers (directors). The advantage of this option is limited liability, so your personal assets are protected if the practice goes into debt, or faces legal action. Companies may also be favoured over the more flexible options above when it comes to bank loans.
The disadvantages include additional paperwork and more complex set-up and operation, frequently requiring advice from solicitors and accountants.
The tax situation is also more complex than for sole traders or partnerships. The company is subject to corporation tax on its profits, in addition to shareholders being subject to income tax on money taken from the business. Tax-efficient planning is crucial.
A Limited Liability Partnership (LLP) is another structure to consider; this limits your liability but has the same drawbacks as a limited company, while leaving you in the same tax position as a standard partnership.
Before registering your practice, it’s worth consulting an accountant regarding the tax implications and your individual circumstances.
You should also consider your long-term plans; if you’re going into business with a partner, will you both want to sell (or delegate management of) the practice at the same time? Or will you need to make plans for one partner to be bought out? Considering these questions at this stage can help to avoid disagreements down the line.
Fortune sides with him who dares.
If you need start-up financing – and you most likely will – your choice of a bank may be tied in with who will offer funding.
Sources of finance
Your own money! This is the cheapest source of money. If forming a partnership pooled funding may be sufficient for your start-up.
External investors: friends and family
Shareholders: you sell a stake in your business in return for funding. The shareholder can take a corresponding slice of profits based on their share.
Banks and other professional investors: will require a business plan that demonstrates how you will make a profit. Loans will attract interest payments.
Your bank can also help you with setting up card payments and other payment gateways and some may offer benefits such as free invoicing and accountancy packages or other tools.
Business loans may be unsecured (often up to £100,000) or secured for larger amounts which may require your assets (such as your home) to be used as collateral in the event that you default.
SPVS offer a course on how to write a business plan to gain funding.
The role of leadership is to transform the complex situation into small pieces and prioritize them.
The main ones are:
Employers’ liability insuranceCovers the employer for any injury to staff while at work. Legally required.
Buildings or contents insuranceInsurance relating to the premises or damage to contents. Some may include business continuity benefits allowing you to move to temporary alternative premises.
Professional indemnity insuranceSafeguards against claims due to negligence or errors. Generally considered one of the most important insurances for vets.
Public liability insuranceCover against a client or other member of the public being injured on the premises.
Key person insurance / corporate riskThis protects the business if the key person becomes ill or dies. It may also include loan protection or protect any shareholder investment.
Income protection / life insuranceCover for your family.Locum insuranceCovers against the need to pay a locum as an additional unanticipated cost.
Some providers offer packages that include the insurance you need as a bundle and also offer insurance audits, helping you to identify what you need.
Healthcare plansYou may also wish to consider healthcare plans for your staff – not only is this a valued benefit but it can help to minimise sickness-related absence.
The backbone of success is hard work, determination, and efficient administration.
The RCVS compiles a Register of Veterinary Practices on behalf of the VMD in order for these practices to be inspected and authorised to supply and use veterinary medicines. The process is relatively simple, requiring a form from the RCVS website to be completed and emailed. A small annual registration fee is due by the 1st of April each year, or when you apply to register a new practice; this can be paid through the RCVS website once your form has been received.
If you plan for your practice to be accredited under the RCVS Practice Standards Scheme, the fee for this includes registration of the premises and an RCVS inspection replaces the one typically carried out by the VMD.
All practices not registered with the RCVS Practice Standards Scheme receive regular inspections from the VMD to ensure they comply with the Veterinary Medicines Regulations. There is an inspection fee payable to the VMD after the inspection is carried out.
The inspection criteria are available online and include an assessment of the following:
Building security
Health and safety
Maintenance of vehicles used to store veterinary medicines
Storage of veterinary medicines away from light, temperature extremes and moisture
Temperature monitoring for sensitive medicines like vaccines
Stock control protocols and removal of out-of-date medicines
Secure storage of Controlled Drugs
Comprehensive record-keeping for Controlled Drugs
Disposal procedures for out-of-date medicines and Controlled Drugs
Handling protocols for potentially hazardous medications
Prescribing practices and protocols
Labelling of dispensed medication
Cascade use
Annual auditing of prescription medicines
Appropriate advertising of veterinary medicines
