How to branch out into software development

Set-up a new company for Software development purchase and future sales and consultancy

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Dear all,

I've been advised by the good people of the IPSE forum to pose this question on here as it's more of an accountacy question. So here goes...

My friend and I are about to kick off a software company to develop a new bit of Project Management software; the price is £36k+VAT for 12 weeks of development. The grand plan is to take this bit of software and sell it to companies + training courses and associated consultancy services. Our exisitng companies have been running for 5-6 years as Project Management consultancy services focussing on Construction & Rail

The questions I would like some advice on are around how best to purchase the software and manage the funding. 

Option 1) set-up a new company with us both as 50% shareholders, pay the money into the new comapny from our existing consultancy LTD companies, and then purchase the software? Both of our 'day job' LTD companies run at around £130k a year turnover on the FRS

Option 2) Both my friend and I pay for the software out of our existing companies, and we somehow get it in writing by way of a contract that we own 50% of the software each

So my questions are

- Is there any benefit to setting up a new company, and loaning it the funds to pay for the software knowing that it's unlikely to start bringing in revenue for 9-12 months (when we're in a position to start selling the product)
- What happens if the software is a flop and the loan doesn't get paid back to mine and my friend's LTD companies? 
- What are the benefits of being full VAT registered if we were to set-up up a new company and get it to purchase the software?

As you can tell, I'm not quite clear on what the most efficient way of getting this software developed is, so any help would be massively appreciated. 

Regards and thanks,

Replies (3)

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By mrme89
15th Feb 2017 10:00

So it is IPSE who we can blame for on these types of questions!

The responses you are going to get from this forum are:
'Pay for an accountant'
'You need professional advice'
'This is a forum for accountancy and tax professionals'
'This website is not for freeloaders'

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Replying to mrme89:
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By tflpunk
15th Feb 2017 10:14

Oh dear.

Apologies. It sounds like I've been given a duff steer.

Thanks for the advice all the same.

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By Tim Vane
15th Feb 2017 11:00

Surely you should have first asked your own accountant - he or she will obviously have first hand knowledge of your business and personal circumstances and can thus advise you holistically, rather than relying on advice from random strangers who may or may not be competent and in any case will have to guess what your circumstances are.

I never quite comprehend why people who are considering putting large amounts of time and money into a new venture do not budget for the necessary professional advice. Then the accountant will be brought in later as an afterthought when it's already too late to do anything about the wrong decisions that have been made.

We're all looking at this thread now and wondering if you are one of our clients who is about to present us with a fait accompli in 6 months time...

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