Starting a business is not terribly hard but neither is it really straight-forward. This article looks at the main issues you need to think about when you go solo.
In this short article I try to cover the things you must think about to start a successful business. The danger is that you won’t be around for long unless you have all of them ticked.
The legal things needed
The good news is that as a new business it is unlikely you will need to register for and charge VAT. Nor is it likely you will want or need to “incorporate” as a limited liability company. This makes things easier.
The things you do need to think about are registering as self-employed, keeping accurate records and filling out a tax return once a year. Then there’s any health and safety legislation applying to the particular trade you will be working in.
You must register as self-employed by the 5th of October following the end of the tax year (5th April) in which you started your business. Your first tax return and tax payment is due by the following 31st January and you must submit this online. For example, if you start your business on 7th January 2019, you must register as self employed by 5th October 2019. Then you submit your tax return electronically and pay your tax by 31st January 2020. Searching the HMRC web site will turn up more detailed instructions.
You will pay income tax on the difference between your sales and costs, but more than the first £10k tax is free. You may also need to repay part of your student loan as well as Class 2 and Class 4 National Insurance. In later years, HMRC may require an advance payment for the following year’s tax bill. You must always put money aside for your tax bill all through the year.
If you hire anybody as an employee, there are quite a few additional rules to follow.
You need to record all of your sales on invoices. My suggestion is that you base the layout of your invoices on ones that you receive from other businesses, ignoring VAT.
You should keep a record of all of the costs that are associated with your business and that includes your receipts and invoices for all charges. This is not just for the obvious things like materials, tools, van costs and petrol for travelling to jobs. You can also usually claim for a share of the costs of running your house. That is if you use it sometimes for doing paperwork, storing materials etc.
Although there will be some fees, it’s worth getting an accountant who will advise you exactly what you can claim for. This will help you to legally minimise your tax.
The trade-related things needed
Whatever trade you specialise in, you need to be good at it and not too slow. Going solo because you have been fired for incompetence is the ticket to a life of pain. Don’t go there. It’s also important to have the right tools. Scrimping here tends to be a false economy.
The business-related things needed
To run a successful business, you need to have a good business head. That primarily means being able to win business at the right price. It means not discounting or charging too little. This takes discipline. You have to cover tax and national insurance, your holidays, any sickness, the cost of tools, your accountant and more. The biggest reason for new businesses failing is charging too little.
The first way you will win business is by word of mouth. That’s why doing a good job is so important. This may be enough if you always intend to be a sole trader. If you want to grow you will also need to market your business.
Finally, when the work is done you need to get your invoice out quickly. Then chase it in a timely manner if there is any delay in payment.
At the end of the day
Starting your own business can be a liberating experience. It can also be fun. At the same time, there are headaches and you only “eat what you kill” which can be terrifying. Good luck!