1. Establishing a company has a setup cost
One thing is clear – the decision to set up a company is a substantial fixed cost commitment. This can vary substantially from country to country. In some countries like the UK, these are minimal, with companies being registered online. However, some jurisdictions are quite expensive for the company incorporation process alone.
It is with the maintenance of the company that overhead costs, and your time spent start to grow considerably.
2. Obtaining a Business Bank Account is not always straightforward
Clearly, you cannot do business without a business bank account. Yet, we have met business owners who have waited over a year to obtain approval for theirs, for example in Brazil.
3. The cost of monthly bookkeepers accumulates to a substantial annual cost
Bookkeepers usually charge a fixed monthly fee or for their time, depending on the complexity of transactions. Hence, even freelancers can end up paying €200-€300 per month, plus costs. That’s almost €4,000 per year of disposable income.
Even if you don’t have sales, you will still need to pay this overhead with bills to bookkeepers (and perhaps also your accountant, lawyer, and auditor on a regular basis). Dealing with the queries for your bookkeeping also absorbs a large amount of your creative energy – the very thing your clients value you for.
It is one of the burdens that bring companies down – the business owner realises that s/he continues to pay this high overhead for the long period it may take to develop a business idea into revenue.
4. You need to prepare books of accounts and prepare financial statements of the company
In the heat of running your business, it is easier to forget that all of those costs, and hopefully revenues, need supporting documentation. You need to access the bank statements, which sometimes can go astray if not filed properly. Sometimes, even your online statements are only available for a limited period of time, and then have to be paid for to access the statement history.
You should select an accounting system which has the ease of functionality which suits you, for whichever currency you are using.
5. You need to appoint an auditor and provide all of the information so they can audited your accounts each year
Choosing an auditor which is familiar with your accounting system in case any adjustments have to be made is important. Audit costs vary by country and number and type of transactions of course. It will also depend how effective a job you have made of your accounts preparation and Financial Statements too.
6. You need a hold a Shareholders Meeting each year to adopt the Financial Statements
This is quite a simple task for freelancers, and will be a carried out as part of the audit work. For larger projects with multiple shareholders, this may involve a more detailed discussion of all of the items in the Financial Statements.
7. You need to present an Annual Return to the authorities within the deadline set
It is amazing how deadlines come around. One minute you have just filed your last Annual Return, then the next minute the auditor is chasing you for information in order to complete the audit before the next deadline. If the deadline is not met, then penalties for late-submission can occur, to add a little extra to your overhead.
8. Where your company is registered will determine your rate of Corporate Tax and VAT
It is worth bearing in mind where you locate. Since a growing number of services or products are not location-specific, or you supply them in multiple locations, then it may make sense to ask which is a location which provides you efficiency in terms of Corporate Tax and VAT.
Corporate Tax and VAT rates vary widely across the world, so choose wisely. You are legally completely free to choose, and it is important to note that this decision is quite separate from your tax status due to your residence.