The pandemic has forced us all to change our way of life, and in doing so it’s made many of us reevaluate how we want to live and work. For many, the idea of returning to an office-based job (or working for an employer who can decide when and where we work), is not attractive. If you’re considering starting a small business so that you can be your own boss and/or work more flexibly, here are a few key things to consider:
The costs of starting your own business
1. What equipment will you need?
You may already have the basics - a laptop, phone and printer - but if you need to buy anything to run your business make sure you keep receipts for those purchases. Equipment bought for business purposes can be deducted from your income, so that you won’t have to pay tax on the amount you’ve spent.
Are you going to be an online retailer? Do you need any specialist equipment to make your products, or are you going to be selling products manufactured elsewhere? If you need to store your products, tools, equipment or raw materials and don’t have room at home, you could rent a self storage unit
- again, remember to keep your receipts!
2. Where will you work?
There are loads of benefits to working from home:
- there’s no commute,
- you can keep expenses to a minimum,
- you can claim part of your normal utility bills as business expenses to offset them against your tax bills,
- you can work in your pyjamas,
- you can work around the needs of your family.
But it’s not all fun and games! Shutting off from work at the end of the day is far more difficult when your dining room is also your office. You may also start to feel isolated (if you’ve been working from home for some time now due to Covid, you’ll know that already). Your office, paperwork and materials/products might start to take over the house…
Do some research into how to work from home effectively, and manage the space you have available to suit your work and homelife.
Depending on the nature of your work, you might be able to run your business using a self storage unit
, so you could keep your work and private life separate without going to the expense of hiring office space.
3. How will you finance your small business?
Once you know how much setting up a small business will cost, you can make enquiries about how you’re going to fund your setup costs. You could approach your bank or independent financial advisor to apply for a business loan, or you can check if you’re entitled to apply for a business start up loan here
The format of your business
4. Should you go limited?
When starting a small business, you’ll need to choose whether your business is going to be set up (or later run) as a:
a, Sole proprietor/trader
- you will run and own the business as a self-employed person; you’ll need to report your income and expenses to HMRC annually, and pay the taxes due.
- two or more of you will run and own the business, each as self-employed people; you’ll each be responsible for the debts and losses, and share the profit as you may agree.
c. Limited liability partnership (LLP)
- like a partnership, but you are each only responsible for any debts/losses to the extent of your own share of the business.
d. Limited company
- the business is run by directors (including you) and owned by shareholders (including you). There are rules about what documents need to be held, and you’ll need to register with Companies House, but if anything should go wrong then your personal assets (like your home and personal savings) will be safe and can’t be claimed against by a company creditor.
5. You’ll need a name for your business
Think about what you want your business’s name to convey - do you want it to be a family business, and use your name? Or do you want people to be able to find it easily or remember it easily when looking for a particular service?
When setting up a small business, you may be a sole trader or small partnership to begin with, and can use whatever name you wish (as long as you don’t try to impersonate or infringe upon anyone else’s business). If you start as, or later become, a limited company though, you’ll need to register a unique name with Companies House, so do a quick search to check if your chosen name has already been taken.
The running costs of your business
6. What insurance will your small business need?
As a small business, you must - by law - hold Employers Liability insurance of at least £5 million if you have any employees working for you. Other insurances you may need include:
7. What type of advertising should you use?
- Public Liability Insurance,
- Contents insurance,
- Professional indemnity insurance,
- Cyber liability insurance,
- Directors’ and Officers’ liability insurance.
Who are your customers going to be? How will you reach them and make sure they think of your business when they need your goods or services? If you’re advertising a small business, you can make good use of social media, or look for opportunities to use digital marketing such as pay-per-click. You could use direct mail, or advertise in newspapers or magazines if your target market is likely to read such publications, or create a website with a regularly updated blog making use of search engine optimised (SEO) content to boost your online visibility.
8. Who will do your accounting?
When your small business is just beginning, you may choose to simply file your own tax return through HMRC’s self assessment process online. As your company grows, you may need to hire an accountant to minimise your tax liabilities. Either way, make sure you have a clear system for keeping your receipts and invoices so that you don’t miss anything when reporting your income and expenses to HMRC.
Other things to think about…
9. How much will you charge?
How much are your competitors charging for similar products or services? Can you undercut their prices whilst maintaining high standards? Could you reduce your overheads by working from home or out of your self storage unit?
10. How much do you want to start your own business?
When you work for yourself, you’ll need passion, drive and commitment to grow your business. There will be very little opportunity to have a ‘lazy day’, or to take time off for holidays because if you’re not working, you won’t be earning. You may get emails or phone calls at all hours, seven days a week, from potential customers - and if you don’t reply or answer promptly, they may go elsewhere.
Being self-employed is tough when starting a small business, but if you have enthusiasm and love the idea of answering to nobody but yourself, then go for it!