Starting your own business

[Gatt]

I'm gonna need to sit down and go through the whole lot
Business Plans, Market Research, etc
Especially in what I want to offer. there is one company not far from me that mainly sells and does a few repairs so need to go have a nosy and see what their prices are, etc...

[Gatt]

Add on top of this that you will need to register with Company House and get a letter head sorted for your business....however if you rent your property you cannot use that as your business premises (I got turned down by Company House for this reason) so enjoy! lol

Lol, yeah though don't think the wife would be too happy if i had to use the family home for anything money related!

[contink]

Just on the premises angle...

I'm literally only moving into a business unit after nearly a decade of running things out of my bedroom, before getting our own house and using a spare room. You can designate a room as being used for business purposes and get a proportion of your household bills (electric, gas, water, etc..) taken as business expenses.

Getting a shop front, or workshop is a massive step though and increases your costs significantly so I really wouldn't jump in with both feet that way initially if you can avoid it at all.

My father has a similar operation to what you're considering down in Devon and he does everything out of a tiny workshop space in the house, that looks more like a cupboard, but it keeps his costs down, making his prices subsequently cheaper. All the competition are stuck at higher prices for two reasons:
1. Higher costs in premises, rates, staff, etc...
2. VAT

As it goes Dad built an extension and he's expanding into a bigger workshop but he deliberately keeps his turnover below the £70K to avoid the need for VAT registration and in particular he offers customers the option to drop off and pick up their computer or he charges £20 or so to get it from them. People like to save a bit of money so quite a few drop it off... It is a security concern though (he has BIG dogs!) so think it through but you get the idea.



As to starting out as a limited company... Don't... It adds massively to the administrative overhead.. an accountant is going to charge you between £50 and £100+ a month to manage it all for you, and it all starts to snowball... Start small, test the water, adjust and then test again... Oh and promise late/little, deliver early/more is a good mantra to go with (one I fail to apply regularly! :P).


I have a spreadsheet that helps you figure out fixed/variable costs... and helps you ensure you are actually paying the bills instead of focusing on the direct costs (cost of the bit of computer kit) and ignoring the indirect (car running, fuel, electricity, book learning, paper, accountant, etc..). I'll see if I can dig it out for you when I get a chance.

[elsiegee40]

+rep for great advice @contink

Just on the premises angle...

I'm literally only moving into a business unit after nearly a decade of running things out of my bedroom, before getting our own house and using a spare room. You can designate a room as being used for business purposes and get a proportion of your household bills (electric, gas, water, etc..) taken as business expenses.

Getting a shop front, or workshop is a massive step though and increases your costs significantly so I really wouldn't jump in with both feet that way initially if you can avoid it at all.

My father has a similar operation to what you're considering down in Devon and he does everything out of a tiny workshop space in the house, that looks more like a cupboard, but it keeps his costs down, making his prices subsequently cheaper. All the competition are stuck at higher prices for two reasons:
1. Higher costs in premises, rates, staff, etc...
2. VAT

As it goes Dad built an extension and he's expanding into a bigger workshop but he deliberately keeps his turnover below the £70K to avoid the need for VAT registration and in particular he offers customers the option to drop off and pick up their computer or he charges £20 or so to get it from them. People like to save a bit of money so quite a few drop it off... It is a security concern though (he has BIG dogs!) so think it through but you get the idea.



As to starting out as a limited company... Don't... It adds massively to the administrative overhead.. an accountant is going to charge you between £50 and £100+ a month to manage it all for you, and it all starts to snowball... Start small, test the water, adjust and then test again... Oh and promise late/little, deliver early/more is a good mantra to go with (one I fail to apply regularly! :P).


I have a spreadsheet that helps you figure out fixed/variable costs... and helps you ensure you are actually paying the bills instead of focusing on the direct costs (cost of the bit of computer kit) and ignoring the indirect (car running, fuel, electricity, book learning, paper, accountant, etc..). I'll see if I can dig it out for you when I get a chance.

[Gatt]

cheers @contink

The room within the house may be the best way to start (if i decide to go through with it)
The spreadsheet would be good to see so I can get a rough idea of whats involved

[wizzard]

Contink,

Not all accountants cost that much. Especially if you keep good records in the first place.

A Limited Company can save you a lot in tax if you speak to the right accountant. You can claim a lot more under a limited company than you can as a sole trader.

Also a limited company is a seperate legal entity so unless you provide a personal guarantee to any loans, if the limited company goes belly up for whatever reason, your personal assets cannot be touched, unless it can be proven you've acted improperly.

I see the same arguments all of the time from people who started out not engaging an accountant and then realised it was a false economy not having one.

Yes spreadsheets are all fine and dandy if your accounting is simple. But can be prone to errors which may not be picked up.

As for artificially keeping the turnover low to avoid VAT registration is playing with fire. BTW the threshhold is now £73k.

Sure there maybe an administrative headache, but worth it for the tax savings.

Speak to an accountant for them to advise on the best structure for your company.

[Chris_in_notts]

just go sole trader no need for limited until your profit hits 15K my accountany recons at that point the extra cost will be out weighed by the taxable benefits of being LTD

if you rent you cant designate a room and have it as a business expense you would have to get your landlord to break down your rent into personal and business use and then offset the business use against your tax bill although your can put a percentage of your gas, water, electricity, phone, internet, mobile phone, ect on your tax return. but if you own you can charge yourself a percentage for the room your account will advise you on this.

speak to an accountant make sure you get a good one from recommendation and remember good accountants arnt cheap and cheap accountants arnt good! but a good accountant will pay for themselves if they know what there doing.

good luck

[Flatpackhamster]

I've been self-employed, running my own business for 9 years. Some thoughts which may or may not be useful.

Setup - I have a Limited Liability Company. This means that if something goes horribly wrong I can walk away. The costs for this, and my payroll, come to about £1,500 a year. Unless you're a natural accountant then getting someone to do it for you is well worth it. By the way, accountants are all mean with money.

The Bank - Cashflow is all important. You need a trustworthy bank manager (or business manager). You have to go to see them in person, every couple of months. You need to build up a relationship. Online accounts are no good.

Setup costs - There are costs for setting up the LLC.You'll need printing for leaflets and cards (try Printcarrier.com - the printing people [ALL WE DO IS PRINT]).

Running costs - Transport (you will need a car). Fuel, food (never eat on on a job, always take your own, it'll save a fortune). Hardware. Christ, the computer hardware. You need to get that stuff shifted as fast as you can. If you've just bought £3,000 of computer hardware, the faster you get the money for that the better. It's better if you can get the client to buy the equipment. Why? Because, when your turnover hits around £56,000 you will have to register for VAT. Which means more paperwork.

Oh, and always take a deposit. No matter who it is. Nobody is your friend. Everyone is a client.

Breaking the law and taking cash without putting it through the books - This is illegal. It is also widespread due to the high costs of running a small business and the high costs of regulation. I've had eight tax rises (Income tax, NI, Employers NI, Corporation Tax) in the last nine years so I really can sympathise with the people who do it.

Discipline. This is the hardest thing. When you've just come in at 8pm on Saturday night, and you know you're back out again on Monday morning at 8am, and that Sunday afternoon is the only chance this week that you will have to do your invoices, do you have the discipline to sit down and do them while all your friends are having a barbecue and drinking beer? If the answer is 'maybe', then self-employment may not be for you.

Customer turnover - Unless your customer base is extremely loyal you can expect to lose 25% of them every year. Some move, some lose your address, some use someone else. You need to advertise constantly.

Reputation - Your reputation is the most important thing. If people trust you they will recommend you. 90% of my work comes from recommendation. Those people know that I'm good, they know that I can be trusted and that is worth its weight in gold.

Loneliness - If you love the office vibe you will hate self-employment.

Contacts - This is so important. One good contact is worth a year's advertising. If you can find someone who knows everyone (head of the Rotary, pub landlord, that kind of thing) and who knows and trusts you and has used you, that person will also be worth their weight in gold. Get in on local committees, local groups (all free ones), get to know everyone you can.

Don't expect to break even for 18 months. You can expect poverty and penury and misery.

And I wouldn't change it for the world. There hasn't been a day gone by in the last nine years where I've woken up and wished I worked for someone. Not. One. Day.

Oh, I've wished for the money and the security. But I'm not prepared to pay the price. And there's something quite special about getting up on a sunny Wednesday morning when you don't have any work on and going for a walk while everyone's at work.

[dhicks]

I'm really sorta looking at a mix of PC installation/Repairs, SOHO installs...

You're really thinking more along the lines of self-employed IT consultant rather than a small business owner with dedicated premises that manufactures anything. As such, working for an umbrella company might be a good option - they take care of the tax, PAYE, etc, and take a (fairly substantial) cut of your fees. @Will_Townsend might be the person to ask about this - his company (ESP - Education Support Professionals) seems to work with several, and he might be able to give some advice in this area. If you do need to register a business in premisis other than where you live, that's what places like Mailboxes, Etc and similar are for - they'll provide you with a registered business address and associated facilities for a monthly fee.

[Gatt]

Cheers, will try and PM him later and see if he can help with anything...

[Chris_in_notts]

I've been self-employed, running my own business for 9 years. Some thoughts which may or may not be useful.

Setup - I have a Limited Liability Company. This means that if something goes horribly wrong I can walk away. The costs for this, and my payroll, come to about £1,500 a year. Unless you're a natural accountant then getting someone to do it for you is well worth it. By the way, accountants are all mean with money.

The Bank - Cashflow is all important. You need a trustworthy bank manager (or business manager). You have to go to see them in person, every couple of months. You need to build up a relationship. Online accounts are no good.

Setup costs - There are costs for setting up the LLC.You'll need printing for leaflets and cards (try Printcarrier.com - the printing people [ALL WE DO IS PRINT]).

Running costs - Transport (you will need a car). Fuel, food (never eat on on a job, always take your own, it'll save a fortune). Hardware. Christ, the computer hardware. You need to get that stuff shifted as fast as you can. If you've just bought £3,000 of computer hardware, the faster you get the money for that the better. It's better if you can get the client to buy the equipment. Why? Because, when your turnover hits around £56,000 you will have to register for VAT. Which means more paperwork.

Oh, and always take a deposit. No matter who it is. Nobody is your friend. Everyone is a client.

Breaking the law and taking cash without putting it through the books - This is illegal. It is also widespread due to the high costs of running a small business and the high costs of regulation. I've had eight tax rises (Income tax, NI, Employers NI, Corporation Tax) in the last nine years so I really can sympathise with the people who do it.

Discipline. This is the hardest thing. When you've just come in at 8pm on Saturday night, and you know you're back out again on Monday morning at 8am, and that Sunday afternoon is the only chance this week that you will have to do your invoices, do you have the discipline to sit down and do them while all your friends are having a barbecue and drinking beer? If the answer is 'maybe', then self-employment may not be for you.

Customer turnover - Unless your customer base is extremely loyal you can expect to lose 25% of them every year. Some move, some lose your address, some use someone else. You need to advertise constantly.

Reputation - Your reputation is the most important thing. If people trust you they will recommend you. 90% of my work comes from recommendation. Those people know that I'm good, they know that I can be trusted and that is worth its weight in gold.

Loneliness - If you love the office vibe you will hate self-employment.

Contacts - This is so important. One good contact is worth a year's advertising. If you can find someone who knows everyone (head of the Rotary, pub landlord, that kind of thing) and who knows and trusts you and has used you, that person will also be worth their weight in gold. Get in on local committees, local groups (all free ones), get to know everyone you can.

Don't expect to break even for 18 months. You can expect poverty and penury and misery.

And I wouldn't change it for the world. There hasn't been a day gone by in the last nine years where I've woken up and wished I worked for someone. Not. One. Day.

Oh, I've wished for the money and the security. But I'm not prepared to pay the price. And there's something quite special about getting up on a sunny Wednesday morning when you don't have any work on and going for a walk while everyone's at work.

73K for VAT now

[contink]

Not all accountants cost that much. Especially if you keep good records in the first place.

Agreed but running a Limited company is nothing at all like running a sole tradership with a much higher bar required. Having the time to learn what needs to be submitted, in what format, within what timeframe, etc.. is not something you do overnight.

A Limited Company can save you a lot in tax if you speak to the right accountant. You can claim a lot more under a limited company than you can as a sole trader.

Also a limited company is a seperate legal entity so unless you provide a personal guarantee to any loans, if the limited company goes belly up for whatever reason, your personal assets cannot be touched, unless it can be proven you've acted improperly.

I see the same arguments all of the time from people who started out not engaging an accountant and then realised it was a false economy not having one.

Yes, but, as per my points above, you are only referring to the positives and not even touching on the downsides at all... My research into all of this proved significantly to me that a lot of people jump in to Limited company because of the same arguments you've given but then find out they've stuffed themselves because of things like:
- The limited company MUST stay in profit, so there's no drawing out cash in a hurry because you need to pay the rent when the business is showing a loss.

... that's just an example but one that made me stop and think long and hard.

Yes spreadsheets are all fine and dandy if your accounting is simple. But can be prone to errors which may not be picked up.

Couldn't agree more... One thing I'd definitely get is an accounts package and start inputting the information properly. Saves a LOT of headaches later on, even if short term it seems like you could do it quicker... Good analogy is touch typing... Pain in the backside to learn, requiring lots of practice, but once you have it, the time saved is phenomenal.

As for artificially keeping the turnover low to avoid VAT registration is playing with fire. BTW the threshhold is now £73k.

Who said artificially? My point was to think long and hard about whether you want to aim that high as it's more than just a bump in the road.

Sure there maybe an administrative headache, but worth it for the tax savings.

Ok... at this point I disagree... You're making the exact same mistake I did when I thought about this (all too briefly) up until 4 months ago.

Yes, you are avoiding the issue of paying VAT on the items and services you buy in and sell on but you will also be adding a markup on these products and services (the value added bit) which you then have to apply tax to. If you're working for SME's that are VAT registered then this works fine and may actually be a positive, but if the end-user are Joe Public or sole-traders then it's not quite so attractive. VAT goes on top of everything... Put another way you are turned into an unpaid tax collector for the VAT man.

That's a cr*p explanation but to give a concrete example:

I have a product normally sold at £10.
Components, for arguments sake cost: £4.60 with £3.60 of that coming from within the EU so I'm paying 60p in VAT
Profit: £5.40

Assume I become VAT registered
I now pay £4.00 for my components.. Great! BUT...
I now have to charge my customers 20% of the price...
Choice #1: Increase price to £12 and risk losing customers but retain profit @ £6
Choice #2: Drop price to £8.33 so the inc VAT price is now £10 but now profit is @ £4.33

Of course, if you start out VAT registered you avoid this nasty decision but it's not something you do without thinking it through.

Of course the other thing is that it's yet more paperwork to add to the administration side of things.



I harp on about the administration and costs in this because at one point recently I realised I was spending 50% of my time dealing with administration (which does not pay the bills) and not with the actual income generation side of things, ie: selling. It's a very easy trap to fall into when starting out as well because you often have that whole "this is easy" rose glass tint thing going on... Lots of hours free, few clients, low stress but as the client numbers increase and the pressure increases, you start realising time is the most precious commodity of all. In my case I had a little boy appear just as everything went nuts so not only did administration suffer but so did quality of work, support, etc... Hard lesson to learn but one that Gatt can at least plan for.

Speak to an accountant for them to advise on the best structure for your company.

As I said earlier, on this I really couldn't agree more... I had a bookkeeper until recently and they didn't provide the information and advice that would, on reflection have saved me close to £3k in more than 5 years so I'm counting some costs there.

[wizzard]

contink,

No disrespect to bookkeepers but they're not really qualified to give advice, they're there to make sure your records are up to date.

[contink]

contink,

No disrespect to bookkeepers but they're not really qualified to give advice, they're there to make sure your records are up to date.

Yep... and boy do I know that now

The word is most definitely "Ouch!"... It didn't kill me so one of those "Live n'learn" things I guess...

[Andrew_C]

An accountant shouldn't cost you anything. They should be able to save you their fees in reduced tax liability! That is, unless you are very good already, and know all the regulations and loop-holes.