Whether you’re newly qualified or highly experienced, starting a small business will involve a lot of new challenges. You gain the freedom of becoming your own boss, but in turn increase your responsibility and work load. This also means that in order to keep on top of everything, you may need to learn some new skills too.
Learning how to start a small business and make it work will take time and effort. You’ll need to get to grips with tricky tasks from bookkeeping to marketing. But if you can put in the work, you might just find that it’s your ideal way of doing things.
Benefits of becoming self-employed
If you’re considering and researching self-employment, you’ve probably heard of the perks, but just in case, here’s what all the fuss is about:
- The freedom to work in a way that suits your needs and preferences.
- The share of the profits is entirely under your control.
- The challenges and excitement that comes with making something new and yours.
However, you do have to do some extra work for these luxuries. You have to be hard-working, flexible, and organised. Sounds like what all employers are looking for anyway, right? Maybe so, but if you’re trying to be successfully self-employed and these qualities are not your strongest, you will find this way of life to be difficult.
So, be honest with yourself, do you already have the skills and experience you need? If not, can you keep working for a couple more years first? Or can you change your plans, and only take on smaller jobs to begin with?
Be careful not to promise more to your clients than you can deliver – a bad reputation can take a long time to erase.
Secondly, don’t neglect your wider situation. Is your home life stable and suitable for starting your own business? Do you have debts you can clear or savings you can make first? Your income is very likely going to go down before it goes up.
Making your small business planning more than an afterthought
It’s tempting for small business owners to make and break their plans as they go. If your business is doing worse than you predicted, it’s best to be honest and act on disappointments early. Worst of all is to ignore problems until your business really hits trouble.
There is some debate regarding whether or not to have a business plan. Experts disagree about whether every small business needs one. But bear in mind, that if you want any form of funding, like a loan from the bank, you will need to put one together. But if you’re starting small or investing only your own money, the answer can waver.
A business plan will help you consider what you expect to happen, and it will help you set targets and with the right research you can really understand your market.
So what circumstances involve not needing a business plan? Well, perhaps if you’re starting out part-time or have no expenses to work through, then you might find you can skip this step. For example, if you’ve just finished an apprenticeship and you’re living at home, you might be able to ease into being a self-employed tradesperson. Nevertheless, planning and preparing never steered anyone wrong before.
How much to start a small business?
‘How much to start a small business?’ is the kind of question a lot of people ask. But in reality, nobody can answer – at least, not in a way that can fit every business, and match everyone’s needs. The answer depends on your industry, starting point, living expenses and where you are in the country, etc.
It’s easy to underestimate how much it costs to start a business. And it’s easy to overestimate your early profits. It takes time to build up a loyal base of customers, no matter how good you are. The best overall advice to give is; before you register your business name, or print out any leaflets or business cards for your new enterprise, take some time to get a rough idea of how much you can expect to pay out.
Decide on a legal structure
It’s not the most exciting aspect of setting up your own business. But deciding on a small business structure is still one of the most important jobs on your to-do list. The legal structure of a business determines how certain tasks must be undertaken. This involves how you’re allowed to withdraw profits, and the paperwork that has to be filled in. There are three common examples of these legal structures, and your business is likely to include one of them.
The first is working as a sole trader, which is the simplest way to set up a business, and it involves:
- Registering for self-assessment
- Keeping a record (including receipts) of your incomings and outgoings
- Submitting your tax returns
- Paying your taxes on time
This structure works well for a huge number of small businesses. The advantages of being a sole trader are clear: it’s quick, cheap and easy to set up, and the ongoing paperwork is fairly minimal.
Unfortunately there are disadvantages, the most common being that there’s no legal barrier between you and your business. This means that if your business owes any debts, they’re your debts too.
The second legal structure is setting up a business partnership.
If you’re going into business with anyone else, you could consider forming a business partnership. This is a fairly easy way to start a small business.
You will need to decide how much of the business each of you will own, which affects both how you divide the profits and how you’re affected by any liabilities. As with being a sole trader, the partnership’s debts are also the debts of the partners themselves – there’s no legal difference.
If you form a partnership, you’re advised to have a partnership agreement drawn up. This could help you if there are any disputes in the future.
The third and final structure is to set up a private limited company.
One of the main advantages of a limited company is that you can only be held liable for what you’ve invested in the company. This sets it apart from sole traders and business partnerships. Using this structure can also make your business look more professional in the eyes of bigger clients.
On the other hand, one of the biggest disadvantages to keep in mind is that they involve more complicated paperwork. You may want to visit a good accountant to help you through the process, because once you have the company, the paperwork continues. Similarly, some tasks have to be done in a very specific way. For example, you can only withdraw money from a limited company by paying yourself dividends or setting up a PAYE system and withdrawing a salary.
To summarise, there isn’t a single best legal structure for all small businesses. That’s why each three of the above structures are popular choices in the UK. You’ll need to weigh up the pros and cons of each structure based on your specifications. That’s why a chat with a good accountant can be helpful.
Registering with HMRC as self employed
If you’re serious about starting your own business, then register with HMRC as self-employed as soon as possible. If you don’t, you could be fined 100% of any tax that is due to be paid in addition to the amount of tax that has been left unpaid. Not only that, but you can benefit from the reminders they send out. Which means that you are less likely to forget about an upcoming deadline. Just remember that the responsibility of deadlines is yours and not theirs.
Building up your tools and/or equipment
When growing a reputation, it’s not just about the quality of your handywork or smile. Most tradespeople will need to spend a lot on professional grade tools and equipment for their new business. To make this affordable, you may need to build up your inventory slowly. Or you might be able to hire certain equipment as and when you need it.
If all of the above are just not possible, make sure not to take on any jobs you can’t yet perform.
Not everyone wants to, or even understands that, in order to run a business you’ll need to be relatively tech savvy. A lot of successful companies bring in a lot of business through online marketing, since that’s simply the world we live in now. If you want to get your name out there, you’ll need quite a bit of know how. If that doesn’t seem like something you can do, you might want to try hiring someone to do it for you, just remember that for a good job, it will certainly cost more than a couple of quid. Here is a list of things you’ll absolutely need in order to create and maintain success:
- An up to date website that stays that way.
- Hefty knowledge on how to use social media, particularly Twitter, Facebook, Instagram, and possibly LinkedIn too.
- A way of showing off your work, either through reviews, high quality photographs and/or graphics to grab the public’s attention.
All of this effort to get your business off the ground could be wiped out if you’re not prepared for accidents or misunderstandings. The right insurance could cover you against a range of mishaps. You may want to consider:
- Public liability insurance, which covers individuals and businesses against costly claims from third parties for injury or damage to property.
- Employers’ liability insuranceis an optional section of cover which extends to cover claims from your employees. It is a legal obligation to have this insurance in place if you have employees, so make sure you’re covered.
- Van insurance– or, if you intend to use your vehicle for business purposes, you’ll need to let your insurer know.