2 Months - Sole Trader or LTD - 100k

[jake_1992]

Hello All,

New here so excuse me if this is in the incorrect section of the forum.

We have recently just launched our own e-commerce site. We have been trading on eBay for around 3 years, due to all the fees we have decided to launch our own website but didn't know how well we would perform against massive competitors.

The e-commerce site has been very successful so far, with 2 months in trading we have turned over 100k - Due to being a sole trader from my eBay business would you suggest it is best we move to a LTD company, we are also in the process of becoming VAT registered. I have seen on this forum that users say accountant fees, book keeping etc and fees work out a lot more expensive but would we save in other areas being LTD.

I'm only 22 so got alot more work in my time to do and a lot more ideas with my business which I wish to push forward with in 2015 but I want to set off on good ground.

Thanks for any advice !

Happy New Year All

 

[JobBidUK]

First off congratulations on the success of your venture!

With regards to your question of would you be better off then I may be able to help a little as I am currently a business student and happen to be completing assessments on business consultancy and the advantages of different types of organisations.

Being a limited company has taxation advantages. Corporation tax is currently set at 20% for "small profit rates" which equates to under £1.5 million. If you exceed £1.5 million you will be required to pay corporation at a "main rate" of 21%. Something that makes it easier to swallow is that by April 2015 both will be set at an even 20%.

For liability purposes, being registered as a limited company is definitely the safer option. By operating as a limited company you are separating yourself from your companies debts and future risks. Meaning, if your business becomes insolvent, your only loss will be the monies invested till date of insolvency. Everything may be going rosy just now with excellent profits but what about in 3 years time when you've took on extra facilities and credit to support growth and something happens to the market and your business is left with massive overstock or expenditure exceeding revenue.

For the purposes of image and reputation, operating as an LTD can have a positive effect. Some companies or suppliers etc may feel weary about dealing with some sole traders and also creditors prefer to lend to LTD's rather than sole traders.

When you register as an LTD you are preserving your company name from imitation or replication.
Operating as sole trader allows others to copy your business name or image without any consequence.

As for record keeping and accountancy fees, if you are operating a website and involved within the I.T industry I'm pretty sure you could successfully keeps records of all business transactions for the previous 7 years and also head online to HMRC's website and fill out your Annual Return Form (AR01) which will significantly reduce your accountancy fees, if not remove them completely.

The transferring of shares process, in the event of share sale, death, retirement, etc, is far quicker and easier to handle if you are a limited company. Sole traders often have little or no paperwork stating who owns what and who is due what.

So in a summary response to your original question. If you are turning over 100K every two months you would more efficient operating as an LTD than you would as a sole trader. Taxation and legality rule in the world of business and these are two characteristics someone in your current position cannot ignore.

Hope this helps!

 

[UK Contractor Accountant]

If you head over to the Accounts & Finance section you will find a sticky thread on trading as a sole trader V limited company.

 

[Pish_Pash]

without giving too much away, what on earth are you selling that has generated £100k in turnover in just two months via your own website?!!! That's stonking - well done!

 

[Tech4Homes]

I'm intrigued as well! What's your site? Well done!!! By the sounds of it you aren't completely new to selling, but to go from 0 - £100k in two months on a new site is amazing.

Personally I would be Ltd every day of the week, but you should get proper advice really.

 

[jake_1992]

Good Morning All,

Thank you for all the replies.

I believe we are going to go LTD for several reasons which involve tax etc....

In regards to the business itself I don't want to give to much away, it has been a lot of work but orders seem to be steady and to be honest I didn't know what on average a new site should turnover within 2 months of trading?

Fingers crossed I can push this business forward to become one of the market leaders and see a 100k turnover every week !!

Happy New Year All !

 

[UK Contractor Accountant]

Don't forget it's profit margins that determines whether a business sinks or swims not turnover. Typically profit margins on e-commerce trading are 20% to 50%.

 

[JobBidUK]

Don't forget it's profit margins that determines whether a business sinks or swims not turnover. Typically profit margins on e-commerce trading are 20% to 50%.

Definitely agree! It is shocking how many people forget that turnover is only what your business is bringing in. After expenditure my e-store walks away with roughly 19% profit margins but as a second income it suits me fine as I'm currently working on several projects.

100K turnover should average about 25K profit but for 2 months trading on a new site is epic! I really applaud your success and hope it continues for you.

Best wishes

 

[Lentinus]

Typically profit margins on e-commerce trading are 20% to 50%.

I assume you mean gross margin ? If that's Net (EBIT) I am changing business!

 

[UK Contractor Accountant]

assume you mean gross margin ? If that's Net (EBIT) I am changing business!

Yes gross profit margin (GPM)

 

[Mpg]

I know a business that turned over in excess of £25 Million last year with £144k profit.

Someones head needs to roll.

They spent nearly that on marketing for 1 trade show

 

[Lentinus]

.. or they had very good accountants!

 

[Pish_Pash]

.. or they had very good accountants!

let's hope HMRC have very good trigger points (& investigators!)

 

[DavidAshdown]

I agree with all the above and £100k in 2 months is quite incredible. What is your average sale price per item?
You mention you are in the process of registering for VAT, do you realise you are already over the threshold?