Working for a no-shot startup ✶
Randall Bennett suggests, among other things, that you should not feel bad about working for what he calls a "no-shot startup" (one where inexperience meets enthusiasm and results in some kind of startup disaster), because you will still learn from those, and:
Crucially, the biggest advantage of working lower down the spectrum is that mistakes don't stick with you. In general, mistakes don't typically stick with you, but the further up the spectrum you go, the tighter knit the community. Make a mistake at the bottom of the spectrum, and there's enough people making mistakes that it's unlikely your mistakes will give you a bad reputation. On the other hand, screw up a company with $41mm in funding, and those mistakes are more likely to follow you.
That's a fair point. Conversely, I expect that most investors with $41m to swing around won't invest in a team that hasn't cut their teeth on previous ventures. And in fact, they didn't, since the colors.com team, to take the example Randall presents, is actually pretty solid and experienced.
Randall adds that after starting at the bottom, once your first hopeless venture dies out, you should work at moving up the ladder, into more and more successful startups.
I think there's a very valuable further point to make.
Startup MBA
Once upon a time, MBAs used to be designed for people who had 5, 10, or more years of business experience, to enable them to formalise and structure their knowledge of what makes a business tick. This was before the trend became to do an MBA 2-3 years out of university, or, god forbid, right afterwards.
The key point there is that until you have some of your own experience to drawn on, most of the things taught in an MBA won't stick, because deeply, viscerally, you won't understand why they're important.
The same is true for startups, but in reverse. Until you've worked (either as a founder or as a very early employee) in a broken startup, you won't know, deeply and viscerally, why the things that successful startups do matter. There are many lessons that you can only understand by contrasting them with the failure case. That's when the insights happen... "Aha! That's how you're supposed to do that."
In short, breaking your teeth on a "no-shot startup" before joining a successful one will help you make the most out of your time at the latter.
If you read this far, you should follow me on twitter here.
A moral obligation to society? ✶
Burak Kanber:
Is that fair? Is that a decision I'm morally allowed to make? I have the skills to help other people out but instead I'm running a startup and writing on my blog. Should I feel guilty? Do I have a moral obligation to use my engineering skills to give back to the world in a bigger way?
This is a question that I have grappled with a number of times. Some people will feel this is irrelevant and doesn't matter. Others will feel that the entire point of entrepreneurship is precisely to control how you give back to society, and be able to ensure you contribute something worthwhile.
After much consideration, I lean towards the latter camp. Running my own business has enabled me to be so much more effective and "direct" in the way that I give back to society. As an employee of a business, most of your contribution will be through taxes. As a business owners, you will probably end up doing your best to reduce these taxes, but suddenly many opportunities will open to contribute back to society in meaningful, tangible way.
Whether those opportunities consist of teaching others who to become entrepreneurs themselves, or building a useful product, or helping other entrepreneurs build useful products, or advising people, or providing them with resources, or even the simple task of deciding to hire someone who deserves a chance and would otherwise not get that chance, opportunities for entrepreneurs to give back abound.
The more successful you become as an entrepreneur, the greater your leverage becomes, and therefore the more impact you can have on the world around you. A broke founder of an early software startup has little chance to contribute meaningfully to the world's big problems. Meanwhile, a highly successful entrepreneur like Bill Gates can influence heads of state and pour vast amounts of money into an attempt to eradicate Malaria.
I say keep doing what you love, get rich doing so (if you can), and keep an eye out for opportunities to align doing good for the world and doing good for you. After all, successful people focus on building more success, not on self-sacrifice.
If you read this far, you should follow me on twitter here.
How to create your own video ✶
On the one hand, this article underestimates the tremendous effort required to put together a good video, especially if you're not a visually talented person (i.e. someone who can scribble stuff and make it look good). On the other hand, Woobius managed to put a number of videos that looked fairly professional, all on a zero budget (see here and here and here), so it certainly is possible.
If you have access to someone (a cofounder or even simply a friend) who is visually talented, this article can take away some of the mystery of putting together a video for your product. Since videos do tend to increase conversion, this may well be worth doing.
I'd say there are two points in a startup's life where it makes sense to throw together your own video. One is before coding anything, as part of a "video MVP" to test the market. There, it's really important not to invest too much time in the video, since it's really just a simple test of the market demand.
The other point is when you've got a website up, and you're trying to increase conversion rates. There, it makes sense to invest a bit more time into the video, but you may still be at a stage where cash is tight and you don't want to spend thousands of dollars on a "proper" video, especially if you don't know whether it'll actually help conversions in your case.
Later on, when you have the financial resources, hiring professionals to put the video together is a better option.
If you read this far, you should follow me on twitter here.
Following on the success of last saturday's post about how to register a business in the UK, I've decided to switch the "simple and practical How-to" to Friday. So, today, let's look at how to make sure you don't fail at Corporation Tax and end up with big fines, in jail, or worse: barred from running a company again.
My experience of the matter is both as an observer - seeing how others do it - and personally, both succeeding and failing at actually getting this right.
1. Make sure you understand Corporation Tax
The biggest problem with all these accounting concepts is that because they sound like accounting, people think an accountant should handle them, and they don't want to learn about them. That's a mistake. First of all, unless you're doing some very complicated stuff (in which case you should have a competent accountant or CFO advising you), CT (and VAT and PAYE) are simple. They're a pain in the ass, but they're simple.
Effectively, Corporation Tax is all about profits. The UK government taxes you based on... well, everything they can, and one of the obvious numbers to tax is your profit. Whether that's the right approach or not might be debated, but it's the reality.
Let's say your turnover is £100k (meaning you are taking in £100k of revenues each year), and out of that you're paying £50k of costs. That makes your "taxable profit" £50k. At a CT rate of 20%, your "tax burden", as accountants like to call it, is £10k. That's it. That's how you calculate CT, fundamentally. Profit x tax rate = CT liability.
2. The Corporation Tax rate
Is the tax rate 20%? It depends on your size and the year we're talking about. The full rates are listed here. If your profit is less than £300k, which is likely to be the case if you're reading this article, your rate is just a straight 20%. If it's above £300k, then it progressively rises to 26% - but this upper level is dropping each year.
You can get the rate to be effectively lower, by using various tax breaks... but we'll get back to that later.
3. What about losses?
If you're not making any profit, then you don't have to pay any Corporation Tax. In fact, any losses you make this year can be offset against future years.
So, if you made a £50k loss last year, and you make a £50k profit this year, you can offset last year's loss against this year and not pay any CT this year either. Such losses can be carried over from year to year until you've used them up.
4. Keeping track of expenses
The main difficulty that any new entrepreneur faces with respect to correctly calculating their CT is simply keeping track of all the expenses. This is the kind of thing that really hurts if you don't do it properly right away, particularly if your business is quite active.
Unless you're only planning to have a few dozen transactions per year (which was the case for one of my businesses), keeping track of expenses can become a nightmare. One of the reasons for that is that you not only need to keep track of the numbers, but also the receipts.
HMRC generally states that it takes a "lenient" approach investigating small businesses. They understand that small businesses often don't have the right systems and advice in place to do their taxes perfectly, so as long as you look competent enough and you don't seem to be defrauding them, they will probably not be bothered about small mistakes here or there. However, if your accounts are a total mess and it shows (for example because amounts don't add up), you will draw attention that could end up costing you a hell of a lot of stress and time.
Having tried both manual and automated expense systems, I come strongly in favour of the latter. I use FreeAgent (referral link included), because the interface is simple and easy to use, it automatically generates all the tax reports I need, and it keeps track of receipts in the system itself. Other alternative systems I looked at were KashFlow and Xero. In this day and age, I would not consider offline accounting systems, or even uber-complicated ancient relics like Sage, to be appropriate for a small business.
We'll cover how to classify expenses, and how to systematise expense-tracking so it's not a nightmare chore, in a later article, but for now, it's enough to say that you should keep track of all your business expenses in whatever system it is you choose, so that you can:
- accurately calculate your profit for the year; and
- justify the calculations if HMRC asks - including being able to produce receipts (electronic or paper) if asked.
5. Filing the Corporation Tax return
The first thing to note about Corporation Tax is that it is only due 9 months after the end of your financial year. You may decide to file it earlier (for example to collect some tax credits), but you don't have to. So, as long as you keep records properly, you don't need to worry much about CT for the first 18 months or so of your business.
Then again, you won't know if your records are proper until you start using them (for example to get your CT filed). So it might be worth filing a bit earlier, especially if you're unprofitable anyway, to properly "test" your expense-keeping system, and make adjustments if you find it wanting.
The form which you're looking to file is called CT600. It can be downloaded from HMRC's website after you log in and "Enroll for Corporation Tax online". This, like all of HMRC's online processes, takes a while, so don't leave it to the last minute.
In an ideal world, HMRC would have a nice, secure online form. And that's what they claim they have. The reality is, HMRC's so-called "Online filing facility" is a gargantuan PDF file that can only be opened with Adobe Acrobat Reader and which takes a whopping 15 seconds to open up on a Macbook Air (Adobe Photoshop takes less than 5 seconds), and which you'll need to set up custom SSL certificates for. It's insane, it's stupid, it's the way HMRC decided to make your life harder. That doesn't mean you should pay an accountant £1,000 just to handle Adobe Acrobat Reader for you and fill in some fields.
If you're using something like FreeAgent for your accounting, you should be able to generate all the key figures via one of the reports there, and just fill them into the form, and hit submit. It will still take you an hour or two because Acrobat Reader is so slow, but it's a pretty straightforward process.
It's worth adding that you can (and should) also submit your accounts via the same PDF (and various other attachments), but we'll cover accounts in another article.
6. What if I'm late? What if I can't afford to pay?
If you're a little bit late in filing, ok. But don't wait any longer! If you're very late, HMRC will fine you, with the fines growing if you keep ignoring them.
You should always be able to pay, because if you use a proper accounting system and keep it up to date, it will tell you how much you're going to owe to HMRC at any point, and you can make sure not to touch that money. I like to put it in a separate account so it can't be spent (I do the same for VAT).
If you can't afford to pay because you screwed up your cash flow (I've been there and done that, before I learned better), then what you should not do is ignore the problem and hope it will go away. Pick up the phone and ring up the number on those HMRC reminder letters. Your mileage may vary, but in my experience, so long as you make a case for why you can't pay now (even if it's basically your fault) but you will be able to pay as soon as such-and-such invoices are paid to you, they will take a lenient attitude. I think the general idea is they have no interest in forcing you into bankruptcy if there's a reasonable chance that you will pay. They'd rather have the money. Try not to do this every year, though. Also, if you're reading this from another country, don't count on this leniency. I hear that Holland is more "fuck you, pay me", for example.
That's it for today. I hope you find this as useful as the previous article.
The series so far:
1. How to register a company in the UK
2. How to: deal with your Corporation Tax (UK)
3. How to: track your expenses (UK)
If you read this far, you should follow me on twitter here.
