Allan is a fellow of the Institute of Chartered Accountants and specializes in helping people start up in business. He has helped thousands of mature people do this, and shares his hints and tips in this chapter.
You can find Allan at www.allaneslersmith.com.
Perfect freedom is reserved for the man who lives by his own work and in that work does what he wants to do.
R G COLLINGWOOD (1889–1943) SPECULUM MENTIS
More and more people are setting up their own business and becoming their own boss. So whether it is earning £5,000 to supplement a pension or building a business that can keep you earning and occupied for years to come, this is the chapter for you. While financially rewarding, this is not the only reason people want to start a business as social and emotional benefits also feature. This chapter will show you how easy it is to start a small business and it is packed with hints and tips to grow an existing small business. Indeed you could start tomorrow and it could cost you only £15. Importantly, in starting a small business you will not be alone and this chapter will signpost you to plenty of help and support and most of it is free (it is just a matter of knowing where to look!). You are also in good company as 91 per cent of businesses in the UK have fewer than four staff and the enterprise culture in the UK is gathering momentum again.
This chapter will give you the confidence to get started and has plenty of straightforward simple advice. The key issues covered are:
Additionally, in the three real-life case studies featured at the end, you will see how Phil, Debbie and Paul are coping after starting up in business. What did or did not work for them? Finally a useful summary checklist has been included to help you tick off the key issues once you decide to get started in business.
Broadcaster Liz Barclay and Maree Atkinson of the Federation of Small Business share their insights into starting a business and share some tips and reveal that ‘Yes, you can!’
Liz Barclay is one of the most recognized voices on British radio today with her common-sense approach to money and finance on You and Yours. Liz also writes for several monthly personal finance and small business magazines and shares her experience and tips below.
First, forget about the salary spiral where you will only consider taking a job that offers you as much as or more than you have earned in the past. Do your calculations carefully and work out how much you need to make to pay your bills and enjoy life. That shift in thinking alone opens up all sorts of possibilities. You can do work that pays less but that you enjoy more, choose your own working hours and when to take breaks and mix work with rest, play, retraining, learning and even unpaid voluntary work. The world is your oyster.
Many of the people I talk to, who are moving out of full-time employment, are thinking of retraining or brushing up long-disused skills at a further education college, or about how they can turn a hobby into an income-generating venture. Self-employment or starting a small business after a lifetime of being an employee can be daunting but it can be done and Allan’s chapter will help you on the way. The people I know who are most successful are those who are doing something they love. Judith is writing verses for greetings cards and taking photos for postcards – using her creative side after retiring from social work. Dawn is going back to her artistic roots and Diane is teaching older people Pilates and complementary therapies. They’re passionate about their businesses and willing to give them the time and TLC they need to make them flourish. Hard work doesn’t seem like a chore so they’re less likely to give up when the going gets tough, as it will.
The section within this chapter on ‘Marketing tips to fill your diary’ will assist you with your marketing and research. The case studies at the end of this chapter show how new start-up businesses have secured their very first few clients. On generating business ideas and marketing, Liz adds:
There are ideas everywhere. You don’t have to come up with something new. You might do what you did before as an employee but on a consultancy basis with new customers. The more important thing is research. Be sure there are enough people who will pay you for what you do and that they have easy access to your products or services. Just because two tanning salons on the high street are buzzing doesn’t mean there are enough customers to support a third. Many businesses that I saw fail had not done enough market research before spending money. Ask your customers what they like about your business and what they don’t. Listen, act and add value – like the butcher in Glasgow who has long queues because he gives his customers recipes for the meat they buy. Talk to your employees who often know the business and customers better than you do. Keep building those relationships so that you spot the trends and stay ahead of the competition.
Liz’s concluding advice is that ‘success comes with having a positive and optimistic attitude to your business. This is a must – yes, you can. The glass is always half full! Be passionate about your business. Do not just turn up to work, but enjoy what you do. Put your life and soul into achieving a good day’s work.’
Maree Atkinson runs her own business and sees hundreds of small businesses start up in her role as an award-winning membership adviser for the Federation of Small Business (FSB). The FSB has around 200,000 members and promotes and protects the interests of the self-employed and owners of small firms. For Maree the watchwords are ‘Yes, you can,’ but take special care over your marketing.
Certainly starting a business later in life may be daunting – I can personally vouch for that. But one big advantage for mature entrepreneurs is the wealth of experience and contacts gathered in work and general life over many years. The more successful start-ups that I see have a real passion to succeed and normally a willingness to adapt. I would agree with Liz Barclay about the importance of market research and really getting to know your customers and the competition you face. This is also a key part of the business plan process that Allan details within this chapter. I definitely agree with Allan that the first draft of your business plan does not need to run on for pages and pages. Indeed some business plan ‘templates’ that I have seen put people off the whole planning process.
I would encourage you to start the planning process by getting something down in writing to show you have researched and understood your target customers. Where are they? What is their profile and what might they need? What price are they prepared to pay? How will you get your product or service to them? These are all good starting questions and you can then build things from there by investigating the competition. With further help from your advice network your plan will start to take shape. Remember that there is a lot of help out there and you are definitely not alone. I see lots of idea sharing, hints and tips and introductions at the various members’ networking and social events we run at the FSB.
Maree goes on to advise:
There are also many courses, seminars and training events to help businesses start up and your accountant, FSB contact and Enterprise Agency (contact details are at the reference section of this chapter) should be able to point you in the right direction. As a bonus you may find that many are subsidized or free. I have some words of caution on this subject and then another tip. In my day-to-day work I find that new mature business owners might be shy or perhaps feel uncomfortable as it has been many years since they attended a course. Also, for various reasons some people think they have no need to take advice or go on training courses or perhaps they just feel out of their comfort zone. In my experience these folk tend to struggle in the first year or two. I would strongly recommend that you take advantage of external support in the early years especially if it is free and of good quality. You’d be daft not to!
One other challenge that I see is new business owners becoming overwhelmed by the many hats they have to wear. People also underestimate the time it takes to do even the simplest of tasks. Perhaps this is because they came from larger organizations with in-house functions for marketing, legal, accounts and health and safety. Unless you bring in specialists to deal with these areas you are left with a choice: deal with the issues or they will simply get left behind. My top tip is therefore about managing your time and it is no shame to work with lists to make sure the must dos are tackled first and the other tasks scheduled in. If you find your precious family time is being spent on disliked jobs, think about hiring in help if you can afford it. I would also recommend checking out trade and professional associations (including the Federation of Small Business, which I represent) as these can provide a high level of support and contacts who can assist.
Maree’s concluding advice is:
I must have seen over 4,000 people start up in business over the past nine years. Those that have taken time to research their product or service, sought input from others, understood the financial requirements and developed the plans needed to launch and continue have a much better prospect of success.
Some further marketing tips from Maree feature in the ‘Marketing tips to fill your diary’ section of this chapter.
Some of the differences between starting a small business and employment
In some cases where there is an opportunity to start a small business there could be a similar opportunity to take a full- or part-time employed position that might be quite similar in the actual work undertaken. Which route is right for you? Here are some of the many reasons for starting a small business:
On the other hand here are some of the reasons for seeking a part- or full-time employed position:
Before getting into plans and ‘Why bother?’ it is probably useful to gain an overview of some common reasons why businesses fail and set this in context with the specifics of running a small business to help you succeed.
There are thousands of success stories about those who took the plunge nearing or post-retirement to build a business that provided involvement, fun and income, plus a legacy for their children. However, for every two success stories there is a business that does not work out and your money could disappear fast if you set up in the wrong way or overstretch yourself. Worst of all you could lose your home if things go really badly wrong so the reasons below and tips throughout this chapter should help you understand and then deal with the risks.
Why businesses fail – learning the lessons
Businesses can fail for many reasons. Learn from the mistakes of others and you will be doing yourself a favour. The number-one reason why businesses fail is that the market moves on and you are left behind. Take time out to think and keep abreast of what your customers really want (have you tried asking them recently?); where are your competitors and what are they doing to keep on top of or ahead of the market and, overall, how is the market moving? Once you get left behind, you’ll find the demand for your services declining and your income reducing – a rather toxic mix.
A second reason (and one that may increase in 2014) is the failure to deal with tax affairs properly. The implications of penalties and interest levied by HMRC (Her Majesty’s Revenue & Customs) are often ignored and only hit home when it is too late. Keep your books properly and retain all records for six years after the year end – in brief, if you can’t prove it, you may lose the tax benefit and pay additional tax, penalties and interest. If there is a problem, HMRC can go back and inspect previous years’ accounts (for up to five years or even longer). If you fail to pay your tax fully when it is due, HMRC will pursue you vigorously and you are giving HMRC a reason to have a closer look at you and your business. On the other hand, if you have genuine cash flow difficulties and cannot pay your tax on the due date, talk to HMRC and you may find their attitude refreshing if it is the first time you have stumbled.
A third reason (and again one that may increase in 2014) is a failure to manage your cash flow and this includes a lack of access to funding. Vee Bharakda is a director of Business Recovery specialists Wilkins Kennedy and advises that ‘access to funding is becoming a real issue! If you go to a bank they will want to know exactly why the business requires funding and will be vigilant in their lending criteria. They will require, in most cases, security over the business assets or the owners’ residential homes.’ Vee adds that ‘in certain cases businesses have found alternative funding through invoice discounting and factoring which can be an effective way to fund an expanding business’. So for someone setting up in business in later life the scale of the anticipated business will be a key issue. On the one hand you may not need external finance if you fund the business from your own resources or if you start small and grow organically. On the other hand if external finance is needed you may have to ‘get real’ and recognize that banks and others are not in the habit of lending money to unviable propositions. It is often the case that the bank will be the largest stakeholder in a business. For this reason security is normally required, which may well include a charge on your home.
A failure to plan and poor management are a fourth reason for businesses failing. Vee Bharakda comments that the failure to plan and basic management deficiencies are often interlinked: ‘Over the years we have seen various examples of inadequate management skills. The day-to-day running of the business sadly seems to take priority rather than planning for the future. Unfortunately the owners are so busy in immediate and minor issues that they fail to recognize the need to spend time on longer-term planning and strategic decisions and the business spirals downwards to failure.’
One common mistake by business owners is that they fall victim to the old excuse that ‘my plan is in my head’. This is short-sighted as they usually take a triple hit because of:
Break the writer’s block and set down your plan in writing for the year ahead. The starting point can be as simple as three handwritten pages defining a few well considered objectives, and a cash flow and profit-and-loss forecast for the year ahead linked to those objectives, plus a robust marketing plan. More hints and tips on this basic, but effective, approach to a business plan are set out in the next section of this chapter. Don’t expect perfection for the first draft, but do keep it under review; with focus and some decent effort it will start to pay off. Why not set yourself some stretching objectives? You never know, you may be surprised at what you are capable of achieving!
A fifth reason for business failure is bad debts (where the customer goes bust and cannot pay your invoices), as this will come off your bottom-line profit and can really hurt. There are a few simple steps that you can take to reduce the potential of taking such a hit. What are your credit terms and have you encouraged all customers to pay electronically? Do you contact them as soon as your invoices become overdue? Do you require cash on delivery or prepayment? (PayPal and mobile credit card machines are transforming the payment services.) In some cases it is worth remembering that a bad customer is sometimes worse than no customer at all.
Vee Bharakda comments that ‘Businesses tend to fail for the reasons Allan has mentioned and one additional reason that we have seen recently – trying to expand too quickly.’ Vee goes on to explain: ‘Some businesses start on the right track, but tend to expand far too quickly either by overtrading, selling more than their cash flow will allow, overproduction of stock or not researching the marketplace or competitors adequately.
‘The most common mistake that we see in this area is businesses employing the wrong staff and additional staff rather than first looking to motivate and incentivize the existing workforce. Extra staff increases overheads and decreases profit. Beware!’
So ‘Why bother’ when it comes to planning? The answer should now be evident from the above – you are improving your chances of succeeding and may even do rather better than you first thought. On that positive note Vee remembers many positive turnaround stories from her career in business recovery and believes that ‘success comes from having a positive and optimistic attitude to your business. Business owners need to be open-minded and realize that they do not need to know everything and must always be willing to learn and adapt with the business in mind. And with that in mind if a business owner is experiencing financial difficulties and is worried about the risk they could be facing it is always best to talk to a business recovery specialist sooner rather than later.’
The starting point is to make a promise that you will put your plan down in writing. Too many people run a mile when the subject of a plan comes up, especially the notion of a grand-sounding business plan. Perhaps armed with some confidence gained from a book on setting up a business, business banking literature, or even after attending a setting-up-in-business course, some new businesses start a plan but never get it finished.
The reason for this is twofold: first, fear of the planning process and, second, intimidation by some daunting plan templates and spreadsheets seen in books or banking literature. The prescription is a three-stage plan that will get you started and then, with experience, you can tweak it and make it that bit slicker.
Stage 1 of the plan: objectives
What, financially, do you need to set as objectives to bring you in that £5,000 or £20,000 or £60,000 that you want in your pocket? This takes a bit of thinking through and ties into the stage 3 section detailed below. Typically you should be able to come up with two or three simple objectives based on income, gross profit (if you sell stock) and overheads.
For a high-powered full-time management consultant who does not sell stock there could be just two objectives. Objective 1: I aim to invoice £40,000 in my first year of trading based on working at least 100 days at an average billing rate of £400 per day. I will review my billing rates quarterly and my performance monthly. Objective 2: I will aim to keep my overheads (after expenses recharged to clients) in my first year to £5,000.
For businesses that sell stock, Objective 3 will be something like: I will aim to achieve the following gross profit percentages:
Product line A: 30 per cent;
Product line B: 40 per cent;
Product line C: 50 per cent.
Gross profit percentages are calculated using:
(Sales price less cost of materials/product sold ÷ sales price) × 100
The key point with objectives is that less gives more: you don’t want a long list of objectives. Just isolate what is important, set them down and double-check that they are SMART (specific, measurable, achievable, realistic and timed).
Stage 2 of the plan: your market research
The next page of your plan should be all about your marketing effort, a topic often misunderstood and mistaken for advertising. Think about approaching this section under the following three headings.
Start with your main product or service and think about the features and benefits of what you are selling. Understanding these and discussing them with your trusted advisers will allow you to start thinking about other related services or goods which you could offer.
Customers
For each main product area ask lots of questions to tease out your research. Who are my customers? Where are they based? When do they tend to buy? How and where do they tend to buy and at what price? How should I contact them? Keep asking those important questions of who, what, why, where, when and how and they will help you tease out all sorts of gems. This part of the plan is vital, as you will have read from the tips provided by Liz Barclay and Maree Atkinson in the ‘Yes, you can!’ section of this chapter.
Competitors
Again, ask yourself who, what, why, where, when and how?
This should lead to a series of activities that you can do to help secure new quality work and customers (note that the marketing section later on in this chapter has further tips). If you end up with a jumble of unfocused ideas try ranking each idea on the basis of priority, impact and cost (free is good!).
Stage 3 of the plan: your income and expenditure forecast
This is your income and expenditure forecast for the year and this third page is the tricky one. It is your map for the year ahead financially and will allow you to monitor your actual performance against the plan. You can then do something about it when you are off target. You should be able to do this yourself but if it becomes a struggle, ask your accountant to help.
Is there more?
Once you have completed your first plan the secret is to keep it alive and keep reviewing how you are doing against it. Your plan can then be improved and extra sections or pages added to make it an even better tool, or you may find that the simple three-stage approach is all you need.
The top tips on your plan are:
If you are married or in a civil partnership your partner’s attitude is crucial. Even if not directly involved, he or she will have to accept (at least) the loss of a room in the house being used as your office. There will be the added distractions of out-of-hours phone calls and, perhaps, suddenly cancelled social engagements. The points below will help you identify other issues that are either of a practical or emotional nature:
This list is by no means exhaustive but the questions give an idea of the things that anyone contemplating starting their own business will face.
Generally, this one topic causes the most groans! But simple bookkeeping, if done properly, is just a by-product of your business and flows naturally from raising sales invoices and paying for purchases. After all, you want to ensure that you are invoicing or charging the right amount to clients, that they pay the correct amount on the invoice (not all manage to do this) and identify any that do not pay at all. For a small business with only a few clients each month, the last issue will be picked up quickly. But if you have multiple clients you may miss an invoice that was never paid. You will never miss an unpaid invoice if you are on top of your bookkeeping.
An even more compelling reason for doing your own bookkeeping is that HMRC has a ‘prove it or lose it’ view if enquiring into an aspect of your tax return. Under the system of self-assessment, HMRC relies on you completing your tax returns. In the case of an enquiry, HMRC tells you precisely what part of your tax return is under investigation; you are then expected to be able to validate every payment (excluding coin-operated vending machines that do not give a receipt) that you have made, with a supporting invoice or receipt (ie not a credit card payment slip with no substance detailing what was actually bought). HMRC will also track the invoice through to the payment on the bank or credit card statement to verify that it was valid expenditure. HMRC can also go to third parties directly for any further confirmation it needs. Understanding the approach that HMRC takes helps you to appreciate the need to retain all invoices and to record how and when they were paid. If you are unable to prove the expenditure, you lose it as far as HMRC is concerned, resulting in fewer purchases being accepted as a deduction from your profits and more tax to pay. There will also be penalties and interest to pay and the scope of its enquiries into your tax affairs will be widened.
Basic bookkeeping
All incoming and outgoing payments therefore need to be recorded throughout the year. When recording income, you will need to differentiate between your fees and your expenses (or other ‘recharged’ items). You will also need to keep a record of income from other sources, such as bank/building society interest. Records of outgoings need to be categorized according to type and examples of some categories you might need to consider are: stock, subscriptions/meeting fees, office equipment, office supplies, post and courier costs; travel fares, parking and subsistence; telephone and internet; sundry; accountancy and professional fees; and insurance.
Many small business owners opt to do their own bookkeeping, with or without the help of a computer software package. If you opt for a software package choose one that your accountant understands and fees should be less. For many small businesses your accountant should be able to provide some Excel spreadsheets that will do the job together with a bookkeeping guide to help get you started.
If you are really averse to bookkeeping yourself, consider hiring a bookkeeper. Bookkeepers currently charge between about £15 and £23 per hour, depending on geographical location and experience and can be found by recommendation from your accountant or business network contacts.
Accountants
Depending on qualifications and experience, accountants assisting new small start-up businesses could charge from £35 to about £120 per hour to assist you in setting up in business and prepare your accounts and tax. A good accountant who knows your industry area will be able to help with general guidance and input to your plan on marketing and pricing, drawing on experience beyond accounting and tax.
Some accountancy firms offer a combination of bookkeeping, accountancy and tax services and, if so, you can expect to pay a premium on the bookkeeping hourly rates quoted above. Always ask your trusted family members or friends if they can recommend an accountant. Remember to ask for confirmation of the accountant’s qualifications (the type of qualification and whether their practising certificate has been issued by a recognized professional body) and check that they hold professional indemnity insurance. It is advisable to meet at least two accountants and see how you feel about rapport and the availability of proactive hints and tips. Will the person you meet be the person who does your accounts and tax and provides proactive advice? Always request written confirmation of hourly rates plus an estimate of fees for the year and obtain a proposed retainer specifying what you and the accountant will do and by when.
Finally, there is sometimes some confusion over the term ‘audit of accounts’. Many years ago, smallish companies in the UK had to have an audit of their accounts. The turnover threshold (one of three thresholds) for being required to have an audit has been increased and currently stands at £6.5 million, so the vast majority of start-ups need not concern themselves with audited accounts.
Paying tax and national insurance
Sole traders
Self-employed individuals running their own businesses are usually called ‘sole traders’. All new businesses that trade as sole traders need to register as self-employed with HMRC. While tax can be daunting, some sole traders with relatively straightforward billing and overheads have been able to undertake their own tax returns after researching the position. In the UK, sole traders pay income tax on their profits. With income tax, you first have a personal allowance, which gives you a tax-free amount and then any excess income (including your profits) is taxed at 20 per cent, then 40 per cent and then 45 per cent. The precise yearly limits are available from the HMRC website or your accountant. In very broad terms, if you are under 65, you currently (summer 2013) have a tax-free allowance of £9,440. You are then taxed on the next £32,010 at 20 per cent and then 40 per cent tax applies to further taxable income up to £150,000. Anything above £150,000 gets taxed at 45 per cent. Many sole traders choose to run their bookkeeping for the year to 5 April to coincide with the tax year end (or 31 March, which HMRC effectively accepts as equivalent to 5 April).
If you are past the state retirement age there will be no National Insurance Contributions (NICs) to pay. Subject to this, sole traders are liable for Class 2 NICs (currently a nominal amount of £2.70 per week), which are collected by direct debit either monthly or quarterly. The mandate is set up automatically when you register as self-employed. After starting, you have three months to register and if you forget there is an automatic £100 fine. You are also liable for the much more significant Class 4 NICs that are assessed and collected by HMRC at the same time as assessing your income tax on profits. Currently these are at 9 per cent on profits between £7,755 and £41,450 and this reduces to just 2 per cent on profits over £41,450.
The payment of sole-trader income tax is reasonably straightforward but there is a twist in your first year of trading. Assuming that you have a year end of 5 April 2015, the first payment will be due by 31 January 2016 so you have a long period of (effectively) interest-free credit, as some of the profits on which the tax is due may have been earned as long ago as May 2014. With the first payment, however, you get a ‘double whammy’ as you also have to pay on 31 January 2016 a payment on account of your second year’s trading. Then on 31 July 2016 you have to make a second on-account payment of the second year’s trading. Both on-account payments are set by default on the basis of your Year 1 profits. You can ‘claim’ a reduction if year 2 is proving to have lower profits than year 1; your accountant will help you with this if it is appropriate.
After this initial tax famine, followed by double payment of tax, you will thereafter receive a tax demand twice a year. Payments need to be made by 31 January (during the tax year) and then by 31 July after the end of that tax year, with any over-/underpayment sorted out by the following 31 January. Many sole-trader businesses set up a reserve bank account in addition to their current account, and place a percentage of their income aside, which is earning interest each month (albeit not amounting to much in the current climate). This tactic should help you resist the temptation to raid money that is not for spending – and ensure you can pay your tax on time.
Additionally, as a self-employed person you are allowed certain other reliefs. Ask your accountant, but the following expenses and allowances are usually tax deductible:
Partnerships
Partnership tax is broadly similar to the process described for a sole trader as above with the exception of some more paperwork. In addition to submitting each partner’s individual personal self-assessment tax return a composite partnership tax return must also be submitted.
Limited company
Companies pay corporation tax on their profits (currently 20 per cent). There is a higher rate of corporation tax of 23 per cent on profits above £300,000 which reduces to 21 per cent from 1 April 2014 and then again to 20 per cent from 1 April 2015. Your company accounts need to be finalized and any corporation tax paid nine months after your year end.
The key point with a company is that the money coming in is not your money – it is the company’s money – so how do you extract your money? The first option is salary and this means running a ‘Pay As You Earn’ (PAYE) system: another form of tax with a rigorous calculation regime and payments that have to be made to HMRC. PAYE carries the income tax rates as featured for the sole trader but NICs (National Insurance Contributions) can be much higher as these are a composite of employee and employer NICs (as the company is an employer). Currently these are 12 per cent employee NICs on £7,748 to £41,444 reducing to 2 per cent for amounts above £41,444 and then an additional 13.8 per cent employer NICs on everything above £7,696. Salary and employer’s NICs are deductible when calculation corporation tax.
There is a daunting year-end routine involving a whole series of forms beginning with the letter P. Overall, the system is capable of being run by a business person with some oversight from an accountant and a decent piece of payroll software (and the free HMRC online service is good). An alternative is to ask a bookkeeper, payroll bureau or your accountant to do it for you.
The second option for extracting funds is dividends (taking for granted that you have repaid expenses and any loan to get the company started). Dividends are not deductible when calculating your corporation tax. The big selling point for dividends is that, at face value, they are not subject to NIC. This leads us neatly into a possible ‘tax trap’ for the unwary. As a director, you can decide whether or not to pay yourself a salary, dividends or both. The appeal of dividends is the lack of NICs. However, this is before we have outlined HMRC regulation number 35 (IR35) that came into force in April 2000.
HMRC is particularly interested in ex-employees setting up service companies that work exclusively for their former employer and also ‘personal service companies’, to use an HMRC term. This is an extremely wide-ranging and difficult subject but, in very simplified terms, ‘personal service companies’ are one-person companies that provide services to one or a few clients. In fact the individual concerned could be seen to ‘look like, act like and smell like an employee’. This situation is one of the subject matters of IR35 and is to be avoided if at all possible! Remember, IR35 only applies to companies (not sole traders).
There are many hints and tips and some urban myths about IR35 and you may encounter advice such as having substitution clauses in your contracts; having clauses in your contracts that mean you are not obliged to work certain days and the client is not obliged to give you work; having all the trappings of a ‘genuine’ business (business cards, headed paper, advertising, seeking to agree a ‘price for the job’, rather than an hourly rate, holding your own professional indemnity insurance and having your own website, etc).
The bottom line as we go into 2014 is that HMRC is strengthening its specialist compliance teams that investigate IR35. HMRC is also seeking to provide more information to assist businesses in understanding whether IR35 affects them. For instance, in 2012 HMRC specified tests and depending on your answers you obtain a risk rating – the higher the score the lower your risk to IR35. You can quickly build up your score with some big hitting points, for instance operating from your own premises and actually substituting another person in the delivery of your services. There are also some modest point earners (such as maintaining professional indemnity insurance and having a written business plan). On the other hand you can almost wipe out your points by going back to work for an employer that you were on PAYE with ‘within the 12 months which ended on the last 31 March’. HMRC provides some examples of freelancers and provides its view on the likely IR35 status. For some these tests will provide a quick fix to IR35 (own premises and a substitution ‘arrangement’) but for most freelancers it is now even more complex and seems to be a step backwards.
Tips and hints on IR35 are outside the scope of a guide like this. It is a big issue and one that you have first got to recognize and then do something about. One of the key players in helping freelancers guide themselves through the minefield of IR35 is the Professional Contractors Group (PCG) at www.pcg.org.uk. This organization, working in conjunction with a chartered accountant who understands IR35, is probably your next step if you are a freelancer and you trade as a company. Briefly, if you fall foul of IR35, the tax inspector will seek to set aside the dividends you have paid and treat the dividend payment as if it were subject to PAYE and NICs (including employer NICs). If you do find yourself subject to IR35 there is a complex eight-step calculation called a ‘deemed payment’ and there is a deemed payment calculator on HMRC’s website: www.hmrc.gov.uk/leaflets/calc_deempyt.htm.
Value Added Tax (VAT) was introduced back in 1973 and it seems that many people have lost sight of the name of this tax and especially the word ‘added’. You are, in effect, adding a tax and are an unpaid tax collector.
If your taxable turnover is likely to be more than £79,000 in the first 12 months or less you must register for VAT unless your supplies/services are outside the scope of VAT. Remember that any expenses that you recharge to clients need to be included in the calculation of taxable turnover. Form VAT1 must be completed and sent to HMRC within 30 days of the end of the month in which the value of your taxable turnover exceeded £79,000 over a rolling 12 months.
UK business clients are invariably registered for VAT so are not concerned about having it added to your invoice. To avoid adding VAT to invoices for business clients in other EU countries it is essential to quote the client’s VAT number on the invoice.
In addition, note that you can claim back VAT on pre-start/pre-registration expenditure involved in setting up the business. If you elect for ‘Cash Accounting’ status, this means that VAT only becomes payable or reclaimable when invoices are actually paid. It avoids having to pay the VAT on your own invoices before slow-paying clients pay you, which can add significantly to cash flow problems. On the other hand, if you have a client who pays you promptly, remember not to spend the cash before the quarter end when you have to submit your VAT return and payment. The VAT regime carries with it onerous fines and penalties for late payment and evasion, and is not to be taken lightly.
If your taxable turnover is below the limit, you may apply for voluntary VAT registration. Before applying, consider carefully whether registration will really be of benefit to you, that is, whether reclaiming the VAT paid on items needed for your business (such as office equipment) is worth the trouble of sending in mandatory, quarterly VAT returns and keeping separate VAT records for possible inspection by visiting VAT officers. One final positive if you do register for VAT is that it seems to give you added credibility with clients.
VAT flat rate scheme
HMRC introduced the flat rate scheme in 2004, with the aim of simplifying record keeping for small businesses. This allows you to charge VAT to your clients at the standard rate of 20 per cent and to pay VAT as a percentage of your VAT-inclusive turnover (instead of having to work out the VAT payable on your sales less purchases). You can apply to join the scheme if your taxable turnover (excluding VAT) will not be more than £150,000 in the next 12 months.
HMRC publishes a list of business categories from which you need to decide which best describes your business. A further bonus is that you can deduct 1 per cent from the flat rate that you use for your first year of VAT registration. As a tip, do not do anything without checking it out with your accountant as there are a few twists and turns that could make the VAT flat rate scheme unsuitable. But, at face value, it seems to have been beneficial to many small businesses. Further information can be gained from HMRC’s website and inserting ‘VAT flat rate scheme’ into the internal search engine on that site.
Marketing tips to fill your diary
When you start a small business there are three marketing ‘must haves’. The first is that you have something that people will want to buy. The second is you and your ability to present and be the face of a viable business. The third ‘must have’ does not come naturally to many people but it can be learnt and it can be improved. It is all about the ability to market the business.
It is a sad fact that many new owners/managers genuinely believe that marketing simply means placing an advert in some well-known directory. Unfortunately this view of marketing means achieving only a fraction of the sales of any comparable business with a decent grasp of marketing.
The objective is to plan ahead, generate sales for your new business, anticipate when your sales will end or dip and start looking for ways you can promote your business before that happens. The following eight tips should help you. Why not use these to assess your marketing to date and what more you can do?
Your own website and/or social media
Now that businesses rely so heavily on the internet have you thought about a website and/or harnessing social media to promote your business? Is there a vital domain name (website unique address) that you need to secure and register? If you search ‘domain names and how to register them’ you will find lots of offers of advice. Instead, try asking friends who operate their business using a website and don’t ignore help that is right in front of your nose: young friends or relatives may know more than you do about this subject.
It is also worth checking out other websites including those run by trade or professional associations which may allow you to register and set up a profile. If you do not want to have your own website, you can set up profiles on various social media ‘networking websites’ such as LinkedIn. Depending on your business, Facebook and Twitter can provide the benefits of building your online contacts (giving potential accessibility) and allowing you to showcase your expertise in a certain area.
Personal contacts and networking
Once you decide to set up your own business your personal contacts, such as ex-colleagues or other small business owners, will be a potential source of work. Too many small businesses forget that behind every contact there is another layer of potential contacts, who are just one introduction away; so ignore this multiplier effect at your peril. In your first year you should be re-educating your contacts to think of you not as ‘Jane who used to work at IBM’ but Jane who now runs her own business advising small businesses on their IT needs. Do not be afraid to pick up the phone or send business cards explaining your new business and what you can offer. Joining the best trade or professional association you can find will be a great way of networking with the added bonus of research facilities, information and other fringe benefits. Currently the Federation of Small Business and Professional Contractors Group receive very positive feedback and represent reasonable value for money. See also ‘Further help, advice and training’ on page 218.
Discounts and offers
These can be used to great effect during seasonal dips, introducing a new service or clearing old stock. Whether it is 20 per cent off, a buy-one-get-one-free offer or the numerous variations of this basic approach there are three golden rules:
Flyers and business cards
Generally speaking a response rate of 1 per cent to a flyer is considered fairly good. With some clever thinking you can increase the response rate. Have you targeted the flyer? A good example would be the wedding gown designer who neatly persuades the reception of a sought-after wedding location hotel to keep a flyer dispenser in their foyer.
Are you able to include your professional or trade association logo on your flyer and business cards? Have you asked if this is possible?
There are two sides to a flyer and business card – have you thought about putting information on the blank reverse side? Could this contain some useful tips or, perhaps, a special offer or discount? Anything that ensures the card or flyer is kept rather than dumped will help your business to edge ahead.
Testimonials
People generally buy on trust and never like to be made to look a fool. The intangible benefit of testimonials is simply that it shows prospective customers that you have done a good job and can be relied upon. Looked at in this way, the benefit flowing from positive testimonials can be powerful and should never be underestimated.
Agencies
Agencies will be especially important for prospective consultants or contractors, as most recruitment agencies also deal with full- and part-time contract positions. When marketing yourself to an agency the same rules apply as when marketing yourself to a potential employer. Good personal and written presentation will help the agency to sell you on to its clients, so take the time to get it right. Remember that it is in the agency’s interest to find you work as it receives a fee for placing you.
There are many options for advertising yourself and your business such as website banners, sponsored links on search engines such as Google, free and paid-for directory listings and sponsorships.
Another approach could be ‘free’ advertising through creating a press release that you forward to local or trade press with an interesting story. Could you also publish it on your website, or send it to your customers and ask them to refer to it with anyone that could be interested? You can also advertise yourself and your skills by writing articles in professional or trade journals – what do you have that is news or novel or leading edge?
Another subset of advertising is sponsorship. The driving instructor who sponsored the playing shirts on the local under-17 football team is a great example of cost-effective sponsorship.
Learn when to say ‘no’
This contradicts all the positive tips above, but is generally the hardest lesson to learn and will probably only come with experience. The fear of losing a sale to a competitor, or the uncertainty of where the next piece or work or sale will come from if you reject this one, may induce you to overstretch or undercut yourself. If you continually face this dilemma it will only place unrelenting stress on you and you may not survive in business for long. So learning how to say ‘no’ in a way that does not burn bridges is important.
Maree Atkinson of the Federation of Small Business (see the ‘Yes, you can!’ section of this chapter) has some additional tips to help you learn to say ‘no’.
Maree advises:
Be wary of the promises of business. You will want to help customers and will want to secure those early sales. You may even find yourself bending over backwards to help. But have you given away your ideas and spent hours of your time with no prospect of the work? A very talented garden designer was asked to redesign a large garden. Excited by the project he prepared some initial plans and the client made a number of changes which he incorporated. The client did go ahead with the work but used the plans with another contractor. I guess it is a balance between ‘marketing time’ and showing your wares but not going too far – all of which you will learn in time!
Marketing to the wrong people. In the early days of starting a small business you will receive invitations for a meeting from possible business partners or joint ventures, who want to ‘see if there’s a way we could do some work together’. Networking is vital to many businesses, but don’t network with random people just because you think you’re supposed to network. Do some research about the offer and listen to your ‘gut feeling’ before you say ‘yes’. In time work out what sort of networking is best for you and what offers to explore further.
Maree’s words remind me of Lord Alan Sugar’s words on what makes an entrepreneur in his latest book The Way I See It. Lord Sugar’s straightforward advice was that ‘If you have partners, they have to bring something to the party.’
Sole trader
A self-employed person is someone who works for him/herself, instead of an employer, and draws an income from their personally run business. If the profits from the work are accounted for on one person’s tax return, that person is known as a sole trader. If the profits are shared between two or more people, it is a partnership (see below).
There is no clear definition of self-employment. Defining an employee, on the other hand, is slightly easier as it can generally be assumed that if income tax and NICs are deducted from an individual’s salary before they are paid, then that individual is an employee.
Importantly, the business has no separate existence from the owner and, therefore, all debts of the business are debts of the owner who is personally liable for all amounts owed by the business. This strikes fear into the hearts of many business owners. You only need to think of the number of business owners who go bust every time a recession comes around and lose their house. Should this be a worry?
First and foremost, you must consider the risk to you in any work that you do. Could it go wrong and could you be sued? Is that a realistic prospect or so remote that it does not even warrant thinking about? Or is it somewhere in the middle? Can insurance help (see the section below)? Remember that such insurance is only as good as the disclosures you make and the levels of cover provided. At the end of the day you know your business, your customers and the work that you do, so the risk assessment can only be done by you.
How to start up as a sole trader
You can start trading immediately.
You can trade under virtually any name, subject to some restrictions that are mostly common sense, such as not suggesting something you are not (connection to government, royalty or international pre-eminence). A B Jones trading as Super Lawns is fine.
The full name and address of the owner and any trading name must be disclosed on letters, orders and invoices.
A phone call to HMRC’s helpline for the newly self-employed (0845 915 4515) must be made within three months of starting up.
Partnership
Two or more self-employed people who work together on a business and share the profits are trading in partnership. The profits from the work are accounted for on a partnership tax return and extracts from that partnership tax return are then copied into the partner’s individual tax returns.
The business has no separate existence from the partners and, therefore, all debts of the business are debts of the partners, so they are personally liable for all amounts owed by the business. In addition, partners are jointly and severally liable for the debts of the business or, put more simply, the last person standing pays the lot. There is a saying that you need to trust your business partner better than your husband/wife/civil partner.
As with sole traders, the first consideration is the potential for business risk, since your personal wealth is backing the debts of the business. First and foremost you must consider the risk to you in any work that you do and, given the ‘joint and several liability’ point explained above, the trust and faith you have in your business partner. As mentioned above, could it go wrong and could you be sued? Is that a realistic prospect or so remote that it does not even warrant thinking about? Or is it somewhere in the middle? Can insurance help? Again, remember that such insurance is only as good as the disclosures you make and the levels of cover provided. At the end of the day you know your business, your business partner, your customers and the work that you do, so the risk assessment can only be done by you.
How to start up as a partnership
You can start trading immediately.
You can trade under virtually any name, subject to some restrictions that are mostly common sense, such as not suggesting something you are not (connection to government, royalty or international pre-eminence). A B Jones and A B Smith trading as J & S Super Lawns is fine.
You will need to consult a solicitor to assist with the preparation and signing of a partnership deed. The partnership deed is for your protection and is essential because it sets out the rules of the partnership including, for example, the profit or loss split between partners, what happens if one partner wishes to leave or you wish to admit a new partner.
The full name and address of the partners and any trading name must be disclosed on letters, orders and invoices.
A phone call to HMRC’s helpline for the newly self-employed (0845 915 4515) explaining that you are starting a partnership must be made within three months of starting up.
Limited company
A limited liability company (often the shorthand of ‘limited company’ is used to describe this trading format) is a company whose liability is limited by shares and is the most common form of trading format. The company is owned by its shareholders. The company is run by directors who are appointed by the shareholders.
The shareholders are liable to contribute the amount remaining unpaid on the shares – usually zero as most shares are issued fully paid up. The shareholders therefore achieve limited liability.
How to start up a limited company
A company needs to be registered with Companies House and cannot trade until it is granted a Certificate of Incorporation. The registration process is a quick and inexpensive process using Companies House’s web incorporation service (it currently costs £15 and is completed within 24 hours). Some people use a company formation agent (Google this term to find such an agent – there are plenty of them) and the process should cost less than £100.
The company name needs to be approved by Companies House and no two companies can have the same name. Names that suggest, for instance, an international aspect will require evidence to support the claim and certain names are prohibited unless there is a dispensation. An example of this latter category would be the word ‘Royal’.
You must appoint a director and this ‘officer’ of the company carries responsibilities that can incur penalties and/or a fine. The appointment of directors should therefore not be done lightly. The full range of responsibilities is set out in The Companies Act; further guidance is available from the Companies House website (www.companieshouse.co.uk). Some examples of the responsibilities include the duty to maintain the financial records of the company, to prepare accounts, to retain the paperwork and to avoid conflicts of interest. Small businesses no longer have to have a separate company secretary but it can be useful to have another office-holder signatory and the risks associated with this position are relatively light. In addition you will need to appoint a registered office, which is a designated address at which official notices and communications can be received. The company’s main place of business is usually used as the registered office but you could also use the address of your accountant or solicitor (there may be a charge for this).
The advantages and disadvantages of the three formats are shown in Table 10.1.
TABLE 10.1
This guide can only give an overview of how to set up and run a limited company and you are strongly advised to obtain a book on directors’ duties and running a company. There are many on the market and a web search will identify several.
Alternative ways of getting started
Rather than start a new business, you could buy into one that is already established, or consider franchising.
Buying a business
Buying an established business can be an attractive route to becoming your own boss, as it eliminates many of the problems of start-up. The enterprise is likely to come equipped with stock, suppliers, an order book, premises and possibly employees. It is also likely to have debtors and creditors. Take professional advice before buying any business, even one from friends. In particular, you should consider why the business is being sold. It may be for perfectly respectable reasons – for instance, a change of circumstances such as retirement. But equally, it may be that the market is saturated, that the rent is about to go sky-high or that major competition has opened up nearby.
Before parting with your money, make sure that the assets are actually owned by the business and get the stock professionally valued. You should also ensure that the debts are collectable and that the same credit terms will apply from existing suppliers. Get an accountant to look at the figures for the last three years and have a chartered surveyor check the premises. It is also advisable to ask a solicitor to vet any legal documents, including staff contracts: you may automatically inherit existing employees.
The value of the company’s assets will be reflected in its purchase price, as will the ‘goodwill’ (or reputation) that it has established. For more information, contact the agents specializing in small businesses, Christie & Co, see website: www.christie.com.
Franchising
Franchising has become an increasingly popular form of business, with attractions for both franchisor and franchisee. The franchisor gains as their ‘brand’ is able to expand quickly. The advantage to the franchisee is that there are normally fewer risks than starting a business from scratch.
A franchisee buys into an established business and builds up his or her own enterprise under its wing. In return for the investment plus regular royalty payments, he or she acquires the right to sell the franchisor’s products or services within a specified geographic area and enjoys the benefits of its reputation, buying power and marketing expertise. As a franchisee you are effectively your own boss. You finance the business, employ the staff and retain the profits after the franchisor has had its cut. You are usually expected to maintain certain standards and conform to the broad corporate approach of the organization. In return, the franchisor should train you in the business, provide management support and give you access to a wide range of backup services.
The amount of capital needed to buy a franchise varies enormously according to the type of business, and can be anywhere between a few hundred pounds and £500,000 or more. The franchisee is normally liable to pay an initial fee, covering both the entry cost and the initial support services provided by the franchisor, such as advice about location and market research.
The length of the agreement will depend both on the type of business involved and on the front-end fee. Agreements can run from three to 20 years and many franchisors include an option to renew the agreement, which should be treated as a valuable asset.
Many franchises have built up a good track record and raising money to invest in good franchises may not be too difficult. Most of the leading high street banks operate specialist franchise loan sections. Franchisors may also be able to help in raising the money and can sometimes arrange more advantageous terms through their connections with financial institutions.
The British Franchise Association (BFA) represents ‘the responsible face’ of franchising, and its members have to conform to a code of practice. The BFA publishes a Franchisee Guide, which provides comprehensive advice on buying a franchise, together with a list of BFA member franchisors and affiliated advisers. It is well worth attending a franchise seminar to find out more and compare the various franchise options on offer.
A good franchisor will provide a great deal of invaluable help. However, some franchisors are very casual in their approach, lacking in competence, or even downright unethical. Make careful enquiries before committing any money: as basic information, you should ask for a bank reference together with a copy of the previous year’s accounts. Also check with the BFA whether the franchisor in question is a member and visit some of the other franchisees to find out what their experience has been. Before signing, seek advice from an accountant or solicitor. For more information, see the British Franchise Association website: www.thebfa.org.
Inventions and intellectual property
If you have a clever idea that you would like to market, you should ensure that your intellectual property is protected. For information about patenting an invention and much more, look at the UK Intellectual Property Office website: www.ipo.gov.uk.
Licences
Certain types of business require a licence or permit to trade; these include pubs, off-licences, nursing agencies, pet shops, kennels, mini-cabs or buses, driving instructors, betting shops, auction sale rooms, cinemas, street traders and, in some cases, travel agents and tour operators. You will also require a licence to import certain goods. Your local authority planning office will advise you whether you require a licence, and in many cases your council will be the licensing authority.
Permissions
Depending on the nature of your business, other permissions may need to be obtained, including those of the police, the environmental health department, licensing authorities and the fire prevention officer. In particular, there are special requirements concerning the sale of food, and safety measures for hotels and guest houses. Your local authority will advise you on what is necessary.
Employing staff
Should you consider employing staff, you will immediately increase the complexity of your business. Sole traders who need to take on staff would be sensible to take advice before doing so on what roles and responsibilities this will involve. Many people starting a business wisely limit recruitment to the minimum in the early days, until they are sure that they can afford the cost of having permanent staff.
Once you become an employer, you take on responsibilities. As well as paying salaries, you will have to account for PAYE, keep National Insurance records and conform to the multiple requirements of employment legislation. While this may sound rather daunting, the government provides a service, staffed by new business advisers, to help small businesses employing staff for the first time get to grips with the tax and National Insurance systems. For further information see website: www.hmrc.gov.uk.
If you are still worried or don’t want the bother of doing the paperwork yourself, your accountant is likely to be able to introduce you to a payroll service which will cost you money but will take the burden off your shoulders.
Personnel records
Many businesses find it useful to keep personnel records covering such information as National Insurance numbers, tax codes, appraisal reports and so on. For information on data protection see the Information Commissioner website: www.ico.gov.uk.
Employment legislation
As an employer, you have certain legal obligations in respect of your staff. The most important cover such issues as health and safety at work, terms and conditions of employment and the provision of employee rights including, for example, parental leave, trade union activity and protection against unfair dismissal. Very small firms are exempt from some of the more onerous requirements and the government is taking steps to reduce more of the red tape. However, it is important that you understand in general terms what legislation could affect you.
Minimum wage
There are now three main levels of minimum wage. For all workers aged 16–17 who are no longer of compulsory school age, the minimum hourly rate is £3.72; for those aged 18–20, the minimum is £5.03; and for those aged 21 and above, the minimum is £6.31 an hour. The apprentice rate for apprentices under 19 or 19 or over in the first year of their apprenticeship is £2.68.
The Health and Safety at Work Act applies to everyone in a business, whether employer, employee or self-employed. It also protects the general public who may be affected by your business activity. The Health and Safety Executive has a useful website: www.hse.gov.uk.
Discrimination
An employer, however small the business, may not discriminate against someone on the grounds of sex, race, disability, religion, marital status, sexual orientation or, since October 2006, age. This applies to all aspects of employment, including training, promotion, recruitment, company benefits and facilities. For further information see the Equality and Human Rights Commission website: www.equalityhumanrights.com.
Contract of employment
A contract of employment is an agreement entered into between an employer and an employee under which they have certain mutual obligations. It comes into being as soon as an employee starts work, when it is taken that he or she accepts the job on the terms offered. Within two months of the job starting, the employer must normally give the employee a written statement highlighting the key terms and conditions of the job, together with a general description of the duties.
Entitlement to a written statement applies to all staff, including part-timers and employees working on fixed-term contracts. By law, they are required to be treated no less favourably than comparable full-timers or permanent employees in respect of their terms and conditions of employment, including access to training, holiday entitlement and benefits. For further information and advice consult your Professional Association’s advice line, local Citizens Advice Bureau or your solicitor.
Disputes
If you find yourself with a potential dispute on your hands, it is sensible to approach ACAS, which operates an effective information and advisory service for employers and employees on a variety of workplace problems, including employment legislation and employment relations. It also has a wide range of useful publications, giving practical guidance on employment matters. See website: www.acas.org.uk.
Insurance is more than just a wise precaution. It is essential if you employ staff, have business premises or use your car regularly for commercial purposes. Many insurance companies now offer ‘package insurance’ for small businesses, which covers most of the main contingencies in a single policy. This usually works out cheaper than buying a collection of individual policies. An insurance broker should be able to guide you through the risks and insurance products available:
You should discuss these points with your insurance company or a broker. To find an insurance broker, see the British Insurance Brokers’ Association website: www.biba.org.uk, or the Association of British Insurers website: www.abi.org.uk.
A frequent avenue that some people explore when nearing retirement is property investment either in the UK or abroad. Since they may be armed with spare funds and perhaps have the advantage of more time available and perhaps even some maintenance skills, you can understand why this happens. Up until 2007 people thought they had it made in property investment with the magic mix of good capital growth and decent returns on their investment through rental income. The capital growth bubble burst in the summer of 2007 and some people have been nervous about this sector ever since. It is beyond the scope of this text to comment on whether or not the tide is turning but it can alert you to some of the key issues and potential sources of further help. Some of the issues are around minimizing your property tax bill, deciding whether to use a letting agent or not, complying with all the red tape and avoiding ‘tenants from hell’.
Remember there are many players in this market including mortgage lenders, mortgage brokers, developers, property syndicates, letting agents, and most will know more than you and all will want some of your money. Some even pay for your flights and travel to visit property abroad and then play on this in a subsequent high-pressure sales environment. I strongly advise you never to give in and sign up. There will always, of course, be another day, another deal. The best advice I can give to anyone thinking about property investment is to invest £10 in David Lawrenson’s best-selling property book Successful Property Letting and review his website, www.lettingfocus.com. This will open your eyes to some of the issues I have touched upon and will give you straightforward and clear advice and information on this market. For instance, one of David’s candid tips is ‘You must like property. So, if houses bore you stiff, you’re probably better off doing something else.’
Armed with this and advice from friends and relatives who have invested in property, you might then be ready to put your toe in the water and start to explore this area.
Further help, advice and training
The very first paragraph of this chapter promised: ‘Importantly, in starting a small business you will not be alone and this chapter will also signpost you to plenty of help and support and most of it is free (it is just a matter of knowing where to look!).’ This chapter alone will help you get started but you will need further help and information. Fortunately, small businesses are well served when it comes to general help and training. A number of organizations offer subsidized or free advice and training schemes. The best ones feature below.
Organizations providing free or subsidized help
Government resources
www.gov.uk contains the government’s online resource for businesses.
Regional or country-specific support is also available at:
Regional help – www.nationalenterprisenetwork.org.
Northern Ireland – www.nibusinessinfo.co.uk.
Scotland – www.business.scotland.gov.uk.
Wales – www.business.wales.gov.uk.
Start up Britain
Start up Britain has been set up by the government to help you find information about starting a business and contains offers and discounts available to new business start-ups. Further information is available from www.startupbritain.org.
HMRC
Your local HMRC Business Education & Support Team provides free training events aimed at start-up businesses and on how to run a payroll. Further information is available at www.hmrc.gov.uk/bst/index.htm.
Adult education centres
Short courses in specific business skills are run by business schools and colleges of higher and further education. Various trade and professional associations also run courses. Further information is available from www.learndirect.co.uk and the Workers Education Association on www.wea.org.uk.
PRIME
PRIME (The Prince’s Initiative for Mature Enterprise) helps people over the age of 50 set up in business for themselves. PRIME offers free information, workshops and business networking events. It can refer people to accredited advisers for free business advice, and in some parts of the country can also offer free mentoring and other services. Should you be interested in self-employment, PRIME is full of practical ideas and helpful business information. See website: www.prime.org.uk.
Tax Volunteers
Tax Volunteers is an independent free tax advice service for older people on low incomes who cannot afford to pay for professional advice. Website: www.taxvol.org.uk.
Other useful organizations
Lawyers for Your Business is a network of 1,000 solicitor firms in England and Wales offering specialist advice to small- and medium-sized businesses. To help firms access business-related legal advice, Lawyers for Business offers a free half-hour initial consultation with a lawyer in your area who is a member of the scheme. Advice can be sought on a range of issues. To obtain a list of members, see website: www.lawsociety.org.
Federation of Small Businesses (www.fsb.org.uk). The FSB represents great value for money. The networking opportunities and fringe benefits it provides makes it a ‘must have’ for most new small businesses.
Professional Contractors Group (PCG) The PCG’s ‘Guide to Freelancing’ is free and can be downloaded from its website (www.pcg.org.uk). PCG’s knowledge of and guidance on IR35 for consultants and contractors is second to none.
Business start-up websites. These are packed with free hints and tips and a useful one is www.bstartup.com and their exhibitions are free, well attended and have some excellent free workshops and guest speakers.
Useful reading
An extensive list of books for small and start-up businesses is published by Kogan Page, website: www.koganpage.com, including Start Up and Run Your Own Business and Working for Yourself. An Entrepreneur’s Guide, both by Jonathan Reuvid, Soul Trader, by Rasheed Ogunlaru, The Rebel Entrepreneur: Rewriting the Business Rulebook by Jonathan Moules and Successful Property Letting: How to Make Money in Buy-to-Let, by David Lawrenson.
Debbie Coupland – Owner/Director of Great War Tours Ltd
Debbie served in the army as an officer for five years, worked in business administration, gained a degree as a mature student and then worked for the Ministry of Defence recruiting officers for the army. In late 2011 following a restructure Debbie took the opportunity to leave and create her own business: Great War Tours Ltd, dedicated to providing private, bespoke, luxurious trips to the memorial sites and battlefields of the Great War in northern France and Belgium (www.greatwartours.co.uk).
What encouraged you to create your own company?
I have been a keen student of the First World War since childhood and over the years have visited a variety of battlefield sites through a variety of tour styles. I felt that there was a gap in the battlefield tour market which I could use to advantage; my unique selling point would be to offer very small tours (to no more than four clients), using a vehicle not usually associated with such tours (a classic, six-door Cadillac de Ville Limousine) and accommodating my clients in top class hotels and restaurants not usually on the battlefield routes. I have spent the last 14 months proving through rigorous testing that my idea was valid and have now completed the first tour with paying clients.
What was the best tip you were given when you set up?
Within the first few days of talking about my proposed business, I was sent a list of six tips for business start-up, the first of which was ‘No more excuses – got a business or business idea, then do it or ditch it!’ I failed to embrace fully only one, ‘Be prepared to sell, sell, sell – too many businesses spend too much time developing the product or service and not enough time planning how to take it to market and sell it. Until you have customers you don’t have a business.’ In my own defence I was still working on my marketing strategy in an effort to garner more! I have also been very lucky to find some very professional people to help me – business mentor, accountant, solicitor, web-designer and marketing co-ordinator, to mention a sample – who have offered me sterling advice delivered through the friendliest of working environments.
How did you find your first few clients?
I have engaged with networking and social media as well as events through which I could distribute leaflets and business cards. In the end I actually found my first clients through personal contact! And I suspect that, in the end, while I am also beginning to embrace radio advertising in a bid to raise awareness of my product, my client base will grow primarily through personal recommendation. My website benefits me by being able to engage directly with potential clients through a video clip and enabling new clients to read previous clients’ reports via the testimonial page. This provides potential clients with essential re-assurance that Great War Tours Ltd is a trustworthy brand.
If you were starting again, what would you do differently?
Several different clichés come to mind as being appropriate here from ‘Ignorance is bliss’ to ‘If I wanted to get there I wouldn’t have started from here’ and finally, the suitably military one, ‘Ignorance is no excuse’! But none of these quite ring true enough so that I must admit that, even with the gift of hindsight, I probably wouldn’t do anything differently. How could I possibly say such a thing, I hear you ask? Hasn’t she learned anything? Well, recently I was privileged to watch a demonstrator working on behalf of the National Association of Flower Arrangement Societies. She advised that the best way to start an arrangement was to visualize the end product and then work backwards! Which observation, I think, describes most aptly, the way I have worked over the last 15 months. I have held my vision of the final product – a private, bespoke, luxurious tour through northern France and Belgium, for no more than four clients – clearly in my head. And everything that I have done since has been geared towards achieving that goal.
Phil Champ, FIMMM, MSLL, MFSB – product, industrial, mechanical designer; sole trader trading as Champ Industrial Design
Phil set up his own business in 2011 having worked as an employee in and around the design industry for over 30 years. In early 2011 Phil’s then employer decided to restructure and ceased to offer product design as an activity. This left Phil wondering ‘What now?’ During the time spent creating a new CV and updating his portfolio and wondering if any of his interview suits would still fit, his phone started to ring. Past clients wondered whether he could carry out design projects for them as his former employer no longer offered this service. After some initial meetings and a consultation with his wife who is an AAT qualified bookkeeper, Phil decided to bite a big bullet and set up on his own business and Champ Industrial Design was born.
Why did you decide to set up as a sole trader rather than a limited company?
After consulting with my accountant (by the way, finding a good accountant was pretty much the first thing on my list of things to do before I even decided that I would try to set up on my own), I came to the conclusion that it would be the quickest and simplest way to get up and running. There is, I believe, less paperwork involved in being a sole trader and I didn’t want to overload my wife with too much paperwork.
How have you found your first years of trading?
A vertical line of learning – there has been no ‘curve’! Business has been great but the new skills that you need to develop quickly can be very distracting and time consuming. These include: writing non-disclosure agreements, terms and conditions, checking that you have the right insurance policies in place. Also, making sure that your terms and conditions are legal and binding brings you into contact with the legal profession.
How did you obtain your first few clients?
I was actually very lucky in that several of the clients from my previous job liked my work and approached me directly to see if I would like to work on certain projects for them. Articles in trade journals helped my services – who says you have to pay for advertising? I see this done by more and more businesses now that I know what to look for. Articles seem to be a good win–win for all concerned.
What were the best tips you were given when you set up?
Get a good accountant who understands your industry, which I did. His first bit of advice was to join the Federation of Small Businesses, which again I did. This proved to be very useful in the first few months as the advice available was invaluable. They also help you realize that you are not alone and that there are other people out there in exactly the same boat as you are. Another good tip came from an unusual source. I had taken up the offer to meet with a ‘business mentor’ and had spent a whole morning with him. It was useful but I came away asking myself more questions than I had gone to see him with. On my way home, I popped into my local off-licence for a couple of bottles of wine for the weekend and there was an assistant there who I hadn’t seen for a couple of years. He explained that he had now come back as manager. I asked him how it felt to be responsible, to which he replied, ‘I have always been responsible; the difference is that I am now accountable.’ I found this one small statement more useful than the whole three or so hours with the business mentor, as it had totally highlighted my inner feeling of disquiet that I had felt since setting up. Once I realized that this was what the disquiet was about, I could set about dealing with it. I started to sleep a little better after this.
If you were starting again, what would you do differently?
I do constantly make an effort to be more organized but as a designer, your natural thought process is quite chaotic, lateral, and tangential. Thinking in logical straight lines sometimes takes a lot of a very different kind of concentration. If it weren’t for having a wife who does do the straight-line thinking, is very thorough, methodical and logical, I would probably have given up and tried to find another ‘normal’ PAYE job. This makes me conclude that you do need a good bookkeeper to keep you on the straight and narrow if your business exists in any ‘creative’ industry.
I think self-discipline is important together with strict allocation of time, as there is a tendency to knee jerk every time a client asks something of you. This approach does not best serve their needs, or allow you to fully concentrate on whatever the task at hand is. I have also become something of a workaholic, so taking time out for other things is important. I guess that this is partly due to having my office at home. I need to learn how to shut the door and stay out sometimes! Have a look at my website at www.champ-id.co.uk and if I can be of help please just get in touch via the site.
Paul Riley – fire safety business; company
Paul served in the battle of the Falklands with the Royal Navy, where he mastered a number of trades including serving as a fireman. Paul subsequently became the chief fire safety trainer for Kidde Thorn fire protection and later set up his own business in 1997 which subsequently went bust. But Paul is starting up again.
Why did you set up as a company?
I set up as a limited company because I simply asked my potential customers what would they prefer and the majority said they would much rather deal with a company than a sole trader. It seems that companies can carry more credibility.
What services did you provide?
The core business was fire safety training and the style and method of delivery were well received. Bolt-on services including fire extinguisher servicing, fireproofing and fire risk assessments were subsequently supplied. Basically if a client asked, ‘Paul can you…?’ and it was about fire safety the answer was always ‘yes’!
In 2004 a major bank asked me to provide my ‘off the wall’ training style electronically with something called e-Learning. To cut a long story very short, it was successful and then another bank said they would like it. We ended up in three of the largest banks in the world as clients, without advertising. At this point I thought, ‘Hang on – there’s a real market out there,’ so I took a large second mortgage on the house and I had eight people working for me and things were looking very rosy.
Where did it all go wrong?
In the autumn 2008 the banking crisis hit: soon banks cancelled orders and development of our software stalled. I tried lots of different ways to maintain cash flow and looked at credit control and invoice factoring. The company became insolvent and in September 2009 I placed my company into administration.
What did you lose?
I lost my house and cars (oh, and a wife), but now I’ve finished licking my wounds and decided it’s time to start afresh. However, this time I, and not my bank, will be in control! I have a £1,000 loan from my sister and in the summer of 2012 I started My Fire Safety Ltd with the tag line ‘Because fire safety is all about you’. I am the sole employee, pulling in expertise as required and already have a few very nice clients.
What have you learnt?
Being on Working Tax Credits has humbled me, and now I count every single penny. In purchasing I look for and find quality at a good price and use technology to talk with customers (Skype, etc), instead of visiting all customers. The recession has taught businesses to be selective and careful in their spending. I can see now that clever businesses are embracing new communications technologies.
Perhaps the most important message is that when the going gets tough the bank manager is not your friend, as he is there to get as much money out of you as possible! I had a great relationship with my bank manager – even on the day I placed my company into administration he said, ‘Don’t worry, Paul, there is no way they will take your house.’ They did – the local manager has no influence at head office. I don’t blame my manager, I just wish he had warned me 12 months earlier.
As we now move into 2014, I continue to keep costs to a minimum. I also invest time in talking to accounts departments, which has worked wonders as I get paid well within 30 days. Asking old customers to refer me has paid massive dividends. Over 70 per cent of my work is now from new clients. Offering great customer service has been key and helping the Prince’s Trust resulted in me being invited to meet Prince Charles at the grand opening of their head office. ‘My Fire Safety’ is permanently exhibited in their reception area! Business is good but this time it’s on my terms and in my control!
My biggest message is put the past behind you. Constantly looking back with anger is damaging and it eats you up. Things do get better. I have my youngest daughter back living with me and I am happy, and I’m looking forward to building my second business!
Starting and running a business – checklist
When starting or running a business, you will encounter a vast range of information and this can sometimes lead to you feeling swamped. This checklist has been developed to help you along the path of starting and running a small business. You should annotate each item as:
N: Not applicable; W: Work on now; A: Review with Accountant; C: Complete