There are quite a few things to do once youve decided to become
self-employed. Here are just a few:
Telling the Taxman
If you are going into business as a sole trader or a partnership you must inform HM Revenue & Customs by 5th October following the end of the current tax year. Otherwise, there could be late notification penalties based on the tax owed and not declared. You must register for Self Assessment either online at www.hmrc.gov.uk, by telephone on 0300 200 3500 or by post using Form CWF1. However, the latter option is only meant to be for people who cannot use the online service). If you wish to file your tax return online rather than on paper (which gives you an extra 3 months), you will need a Government Gateway online account which is part of the process of registering online.
However much you keep your costs down you will still need finance, and it is vital to know how much you will need and where the money is going to come from. Maybe you can afford to fund the business from your private finances or perhaps friends and family will be willing to help you out. If not, then you will be looking for external finance. Banks have always been the traditional source but are more willing to lend to businesses that are already established. You will probably need to put your house up as security or give them a floating charge over the business. An overdraft may be a possibility but can be called in at any time so is not suitable for long term funding. Venture capitalists are another possibility but they will demand a stake in your business and may impose certain conditions. Government grants are available for new start-ups and are definitely worth applying for but there is a lot of competition for these and you will need to show that your business is worthy. Whichever funding route you go down, a proper business plan is essential and you need to put a lot of thought into how you present this. Have a look at our Business Plans information sheets for advice on how to do these.
There are several ways of recruiting staff, some more expensive than others. The expensive ways are to go to an agency or advertise in trade journals or mass-circulation newspapers. If you want to keep the costs down, you could always advertise in your local press or on-line. For as little as £25 you can advertise on the Gumtree website and probably be inundated with job applications. However, for many employers the quickest and easiest route is word of mouth. Most business people know someone who is looking for a job and may be able to give you inside knowledge of that person. Whichever route you go down, you must give employees a written statement including certain statutory details within 2 months of them starting work for you. You must also be aware of your responsibilities as an employer with regard to things like statutory holiday, minimum wage, unfair dismissal, discrimination, maternity/paternity pay, TUPE (Transfer of Undertakings Protection of Employment), the working time rules and the new agency worker regulations.
Health and Safety
If taking on employees sounds like a legal minefield, just wait until you see the health and safety regulations! Like any organisation, you must provide a safe working environment for both your staff and any visitors you may have, even if you are working from home. If you employ 5 or more people (including yourself) you must have a written health and safety policy and carry out a risk assessment. Obviously your health and safety responsibilities will be dictated to a large extent by the type of business you run. We strongly suggest you look up your responsibilities on the Health and Safety Executive.
Insuring the Business
If you are trading from business premises you will need insurance for all the usual risks such as fire, theft, flood and malicious damage. If you are renting then your landlord should have already arranged insurance (and will include it in your service charges) but it is always best to check. You may also need insurance for commercial risks such as product liability or business interruption. If your business is not a limited company and you only employ close family members, you do not need compulsory employers liability insurance. Otherwise, if you employ anyone other than yourself (assuming you own at least 50% of the shares) you must have an EL policy worth at least £5 million and display the certificate on your premises. Most insurers include EL cover of at least £10 million in their standard office polices. You also need to arrange motor insurance for any vehicles you use in your business. Even if you only use your own car, you cannot rely on the current policy covering social, domestic and pleasure use only if you start using it to transport goods and employees around. You will need to tell your insurer that you require business use too. Finally, think about key man insurance in case you or your employees are sick for any length of time.
Finding an Accountant
This is where we come in! Getting your accounting records in order and taking proper tax advice right from the start will save you a headache later. You need to decide what kind of accountancy service you require. This can range from a year end service only with a bit of hand-holding at the start and move on to a monthly or quarterly service providing management accounts and cash flow forecasts once the business gets off the ground. At the top end of the range, your accountant can give you a day-to-day book-keeping service with continuous review of your debtors and creditors. He/she may also act as a part-time Finance Director advising on business strategy and going to meetings with you to discuss financial matters. The choice is yours and will depend on the requirements of the business and how much you are willing to pay in accountancy fees. Whoever you appoint as your accountant, we would always recommend someone who is professionally qualified and belongs to one of the UK accountancy bodies, such as the ACCA. A qualified accountant will have professional indemnity insurance and a continuity agreement with another qualified accountant who can take over if anything ever happens to them. They must also abide by the rules of their accountancy body such as keeping their technical knowledge up-to-date (all ACCA members must undertake at least 40 hours of continuing professional development each year).
You must keep accounting records right from the start or it will be a real hassle trying to catch up later. Whether you are a sole trader or director of a limited company, you are legally bound to keep records of income, expenditure, assets and liabilities. For a small business, it will probably be sufficient to keep your accounting records on spreadsheets or even use manual methods such as cashbooks. A business with more than about 10 regular customers or suppliers would probably be better off using an off-the-shelf software package such as Sage or QuickBooks. However, if your business is fairly complex and you need to use a bespoke computer system, such as an on-line reservations system for a travel company, you must make sure it produces all the accounting data you require, especially for VAT, or there will be a lot of extra work for your accountant to do.
Watching the Cashflow
Keeping your overheads as low as possible is one of the skills of being in business. Youve got to be a good negotiator, a good haggler. And youve got to watch your cash flow and forecast income and expenditure as much as possible. Cash Flow Forecasts and Profit Forecasts are important financial tools for any serious business. If they are properly prepared and kept up to date, they will highlight cash shortfalls or low profit margins before they actually happen, giving you time to do something about it. Come and have a word with us if you would like any help with these.