4 September 2026 – written by Steffen Kemmerzehl – Friendly Assist Accountancy – The Accounting Hub
Most people start a business with some idea of where they would like it to go. Perhaps the aim is to gradually build a full-time income, employ somebody, move into premises or simply have more control over when and how they work.
A few years later, the business may look quite different. You might have more clients but less free time, considerably higher turnover without feeling much better off, employees or subcontractors you never originally expected to have, or debts and financial commitments which make changing direction difficult.
Sometimes the opposite happens. The business never quite reaches the level you expected, circumstances change, or you simply decide you would rather do something else.
That is a useful point to look at the business as it exists today rather than continuing with decisions made when the circumstances were completely different.
Being Busy Doesn’t Necessarily Mean the Business Is Working
Suppose a self-employed professional increases turnover from £35,000 to £55,000. On the surface, the business has grown considerably.
But perhaps they are now paying for additional software, advertising, professional memberships and subcontractors. They are working longer hours and have several customers who regularly pay late. Their tax liability has increased and they may now also have to consider Making Tax Digital for Income Tax.
The business has grown, but that doesn’t automatically mean the owner’s position has improved by the same amount.
This is where it becomes useful to look beyond turnover. Which services actually make money? How much unpaid time goes into each client? What costs have gradually become permanent? How much cash is available after allowing for tax and bills which have not yet been paid?
Sometimes the answer is to grow further. Sometimes it is to increase prices, stop offering something or deliberately become smaller.
What If You Wouldn’t Start the Same Business Again?
This can be an uncomfortable question, but it is often a useful one.
Imagine you were starting today with everything you now know. Would you still offer the same services? Would you charge the same prices? Would you take the same premises? Would you employ the same number of people? Would you operate through a limited company?
If the answer to several of those questions is no, it doesn’t necessarily mean the original decisions were wrong. They may have been perfectly sensible at the time.
It may simply mean the business has changed.
For example, somebody may have formed a limited company because they expected the business to grow substantially, but a year later turnover is relatively small and they are spending money and time maintaining a company they no longer need. Another person may have remained a sole trader while their business has grown considerably and now wants to know whether incorporation is worth considering.
The appropriate structure depends on the position you have now, not the position you expected to have several years ago.
Sometimes Closing the Business Is a Business Decision
There is a tendency to treat business closure as something that should only happen when everything has gone badly. In reality, perfectly solvent businesses close for many reasons.
An owner may return to employment, move abroad, retire, start another business or simply decide that the return no longer justifies the time involved.
For a sole trader, stopping can involve dealing with final income and expenses, outstanding invoices, assets and the final tax position. A limited company has additional considerations, including final accounts, Corporation Tax, money owed to or by directors and the formal process of closing the company.
Suppose two directors formed a company, traded for eight months and put £10,000 through it before deciding the idea wasn’t going anywhere. There may be very little money left in the company and no obvious creditors. That doesn’t necessarily make the closure complicated, but it is still worth establishing what the company owns and owes before applying for dissolution.
Where a company owes significant amounts to HMRC, suppliers or lenders, the position can be very different. Dissolution shouldn’t simply be treated as a way of making liabilities disappear.
Starting Again Doesn’t Automatically Leave the Old Business Behind
Sometimes somebody closes one activity because they want to start something new.
That can be completely reasonable, but it is important to distinguish a genuine new start from simply moving the same problems somewhere else.
Imagine a sole trader has £12,000 of outstanding tax, several unpaid supplier bills and a vehicle finance agreement. They decide to stop the existing business and start a different activity the following month.
The old Self Assessment liability doesn’t disappear because the trading name changes. Neither does a personal finance agreement or another obligation entered into by the individual.
Limited companies are legally separate from their owners, which can change the position, but that doesn’t mean every company liability automatically disappears on closure either. Personal guarantees, director transactions and the circumstances in which the company stopped trading can all matter.
Before concentrating on the new business, it can therefore be worth establishing exactly what is being left behind.
Business Debt: Is It a Bad Month or a Bigger Problem?
A business being short of cash doesn’t necessarily mean it is insolvent.
Consider a business which is owed £15,000 by customers but has £7,000 of bills falling due this month. If those customers normally pay and the underlying business is profitable, there may primarily be a timing problem.
Compare that with a business owing £25,000 to HMRC and suppliers, with £2,000 in the bank, very little money due from customers and continuing monthly losses. That is a very different situation.
Putting all business debt into one number can hide these differences. It is useful to separate HMRC liabilities, loans, credit cards, supplier balances, finance agreements and money owed to directors, and then look at when each amount actually becomes payable.
HMRC may in some circumstances agree a Time to Pay arrangement for tax debt, but that doesn’t solve an underlying business model which continues to lose money every month.
Finding out which problem you actually have is the important first step.
Commitments Matter When You Want to Change Direction
A business owner might say, “If things don’t improve, I’ll just stop trading.”
Sometimes they can.
Sometimes there is an office lease, a vehicle agreement, equipment finance, software contracts, insurance, employees and other commitments which continue even if sales stop tomorrow.
This is why looking only at the current bank balance can be misleading. A business with £20,000 in the bank may appear financially comfortable, but the position looks rather different if £8,000 is due to HMRC, £5,000 relates to bills already incurred and several months of unavoidable costs remain.
Before expanding, downsizing or closing, it is useful to identify the commitments the business has already made and which of them can actually be changed.
That is particularly important where the owner has personally guaranteed a company obligation. Limited liability does not necessarily protect somebody from an obligation they have separately agreed to meet personally.
Taking On an Employee Changes More Than the Monthly Wage
Employing somebody is another point where a business can start to look different from the one originally planned.
Suppose a business owner thinks they can afford an employee because they have £2,000 per month available. The employee’s salary is only part of the calculation. Employer National Insurance, pension contributions, holiday entitlement, payroll administration and other employment costs can all affect the actual amount the business needs to support.
There are also practical commitments. An employee isn’t an expense which can necessarily be switched off next month simply because sales are temporarily lower.
The opposite situation can be equally important. If a business is shrinking or closing, there may be final payroll, accrued holiday, notice and potentially redundancy considerations. Employment law questions may require specialist employment advice, but the financial consequences should still form part of the business planning.
Calling Somebody Self-Employed Doesn’t Necessarily Make Them Self-Employed
Small businesses sometimes try to avoid employment administration by using freelancers or subcontractors instead.
There is nothing inherently wrong with that where the relationship genuinely is one of self-employment. However, putting “self-employed contractor” on an agreement doesn’t by itself determine the tax position.
How somebody actually works can matter. Who controls the work? Can they genuinely provide a substitute? Are they operating their own business and taking financial risk, or are they effectively working as part of yours?
Getting this wrong can create PAYE and National Insurance issues later, so employment status is worth considering when the working arrangement begins rather than only when HMRC asks questions.
Tax Can Become a Problem Even When the Business Is Profitable
A business can be doing reasonably well and still experience a tax problem.
A sole trader may have had an unusually profitable year and then discover that the January Self Assessment payment includes both a balancing payment and the first payment on account towards the following tax year.
A limited company might have Corporation Tax approaching while also needing to pay VAT and PAYE. The money sitting in the bank therefore isn’t necessarily money available for the directors to withdraw.
This is one reason preparing figures during the year can be more useful than waiting for the filing deadline. It allows you to estimate what is likely to become payable and distinguish genuinely available cash from money which will shortly be needed elsewhere.
Making Tax Digital Can Be a Reason to Look at the Business Differently
Making Tax Digital for Income Tax became mandatory from April 2026 for qualifying sole traders and landlords with qualifying income above £50,000. The threshold is due to reduce to £30,000 from April 2027 and £20,000 from April 2028.
For somebody who has always prepared their records once a year, this can seem like another administrative requirement.
But there is another way to use the same information.
If the records are being maintained during the year anyway, they can show whether turnover is increasing, which costs are changing, whether customers are paying promptly and approximately how much profit the business is actually producing.
The bookkeeping HMRC requires can also become information you use to decide what to do next.
Growing, Shrinking, Closing or Starting Again
There is no rule saying a successful business must continually become bigger.
For one owner, the sensible next step may be employing somebody and expanding. Another may be better off increasing prices and deliberately accepting fewer clients. Someone else may decide to close a limited company and return to straightforward self-employment, while another business owner may need to deal with debt before deciding what comes next.
What matters is understanding the financial consequences before making the decision.
At Friendly Assist Accountancy, we work with sole traders and small businesses at different stages, including businesses that are growing, changing direction or coming to an end. We can help with bookkeeping, Self Assessment, company accounts, Making Tax Digital and the accounting and tax aspects of closing a business or starting something new.
Where there are significant debts, insolvency concerns, legal disputes or employment law questions, specialist advice may also be needed. Part of getting the position right is recognising when the issue goes beyond ordinary accounting.
If your business no longer looks like the one you originally planned, it may be worth reviewing the position before making another big decision. We can look at where the business stands now, what tax and financial commitments remain and which options may be worth considering before you grow, restructure, close or start again.
Steffen Kemmerzehl
I am a qualified AAT accountant in Newcastle upon Tyne.
Please get in touch if you’re interested in arranging an appointment.