A common question when starting out is when to register your online business. It’s definitely a question that weighs on the mind of something getting started.
First up, I’m not a tax specialist or lawyer. So anything included here is purely personal opinion. In fact, I’m an idiot so don’t listen to me about this sort of thing. Fair warning? Good.
That out of the way I can tell you my utterly unofficial recommendation here regarding when to register your online business.
Registering a business: not as hard as you’d think
Before that though (what a tease!) it’s important to know that registering a business isn’t that big a deal.
It seems like one of those major “big boy business” things right? Like you’d need to put on a nice suit and go to…a bank? The government? Or something?
In reality though you register a business online (hey that internet thing is pretty neat!) and it takes 20 minutes or so.
Here in the UK you have to pay to register a business. So that’s probably pricey right?
Nope – it’s £12 to register a company. About $17 for our stateside cousins.
Here’s the thing. Our governments want us to set up businesses. Businesses are good for the economy (generally) and as such they try to remove barriers. So what might seem like a massive insurmountable task is actually now pretty simple. £12. 20 minutes or so. Done.
Companies House (the registration body here in the UK) actually has a lovely step by step guide to walk you through the process.
OK some of that looks complex right? But if your business is you, yourself and you then the answer to most of those questions is just writing in your name. Again.
Company secretary? Well, that shall be me.
Directors? Yes, I think I shall.
Shareholders? Let me think? Hmm. Me!
Persons of significant control? That Larry down the road seems a’ight. Psyche. It’s me!
A whole bunch of complexity melts away if it’s just you.
If it’s a partnership or even something more complex? Still very doable. Don’t get intimidated and just follow the process.
Registering a business and tax
So if registering a business is that simple you should just go ahead and do it right?
Well hold on a moment!
Once you register a business you’ve triggered a ticking clock. Now that the business is registered you’ve agreed to submit certain information on a regular basis. The biggest obligation here will be taxes, generally on a yearly basis.
This means that once you are registered you now have made extra work for yourself in the future. Not a problem if the business is up and running and turning over a profit. In fact it’s a requirement! You have to do your taxes.
But what if you’re still struggling to get your business off the ground? What if you didn’t really ever start it? What if you read the paragraph above about when to register your online business and thought “well that’s easy” and just did it before you launched your business?
Well – in around a year’s time you’re going to have to still provide information about how your business is getting along.
Filing requirements kick in the moment you’ve registered.
The registration itself: easy. The filing : hard.
When to register your online business
Based on i) not being lawyer or accountant and ii) the fact that as soon as your register you create filing obligations my answer to when to register your online business will be: when you are making money.
Now – this is super crude. In accounting terms we might use the term “trading” as in, “when did you start trading?”. But again I’m no accountant so I’ll steer away from any legit lingo.
What we do need to be aware of though is that most online businesses simply won’t work straight out of the gate. Especially if it’s one of your first online businesses. In fact the first few will probably crash and burn. Sorry!
But each of these will be a learning experience, bringing you close to something that does work. Something that does make sales. Something that does turn a profit.
And remember this is what taxes are ultimately about. The government wants to know what profit you are making so it can take its cut. So if you aren’t anywhere near a profit (ie. you haven’t even built a website, you haven’t landed a single customer, you haven’t made a sale) then quite frankly the taxman doesn’t care about you all that much! You are currently worth a big fat ZERO in terms of tax revenue.
And most early online businesses (until you’ve built up the SKILL of building online businesses) will be like this for a while.
The worst place you can find yourself in is to have a bunch of registered online businesses that aren’t trading but have filing requirements. Sure, your tax filing each year is basically going to be £0, nothing happened but you’ve still created a whole buttload of extra headache for yourself for no reason at all.
Retroactive tax
But what about if your company starts getting off the ground and money starts coming in? Well, now is the time to register and chat to an accountant.
The great thing about taxes (yay??) is that they are backwards- they are charged on prior profits.
So let’s say you start making some actual profit. You have a time delay before taxes are due on those particular profits. This time delay gives you the space required to sort out your whole registration and tax situation.
But importantly you only move onto sorting this all out because you’ve started to make a profit and actually have something worth taxing!
When to register your online business – practical steps?
What does all this mean in an (unprofessional, non legally binding) nutshell?
Focus first on your business.
Make sure that you are producing something of value for your market. Get feedback. Find your niche. Secure product market fit.
When this is finally done you may start to see a profit. Generally it’ll come in slowly. But it’ll come.
At this point go ahead and register. You are moving in the right direction and have some certainty that in a year’s time (when taxes are due) you’ll actually have something worthwhile to file.
Then you have a period to get your business systems in order so that your first tax filing isn’t an absolute nightmare. Thankfully with online business we already have tools like Stripe (for credit card processing) and Xero (for accounting) that we can hook straight into our business. These make accounting much easier.
Hire an accountant. This is massive. Sure they are expensive. Know what’s more expensive? First, the cost of your time trying to figure that stuff out yourself. Second, the cost of getting it wrong.
As a business owner you need to learn to delegate expert tasks to experts. Try to do it all yourself and you’ll remain an amateur in all things.
Don’t let it become an excuse
Here’s the real message today.
Some people don’t really want to start their own online business.
Sure, they might like the idea. But they are scared. For whatever reason.
And these people tend to come up with excuses for why they are not pushing forward.
Online business doesn’t work. The market is too busy. Registering a business is prohibitively difficult.
And the truth? If they believe all of this to be true then guess what? It is true. Or at least for them it’ll remain so.
Registering a business becomes one of those “Things”. A big block that stops someone from chasing a dream. A reason to not progress.
Truth of the matter is that it’s not hard to register a business. Sure there are filing requirements but again those are manageable, especially when out online business is run through Stripe, Shopify, Xero and similar tools that make life infinitely easier.
If you find yourself (or know someone else) getting “Stuck” because of issues like registration then most likely there is a deeper resistance. That needs to be unblocked. Then small issues like the question of when to register your online business will simply melt away. You’ll be too busy creating value, helping customers and building the life you deserve.