Do you know what sells? Have an idea for a product or service that you know is much needed in your area? Or perhaps you’re just ready to be your own boss? The most important thing you need to start a business in the UK is a good idea: there are currently more than 4.5 million self-employed people in the UK. The rise of the internet means that it’s easier to set up your own website and start your own business than ever before. If you’re ready to join them then here’s everything you need to know about how to start your own business:
What to Think About When Starting a Business
Working for yourself and running your own business can be incredibly rewarding, but it isn’t the right choice for everyone. Before you take the plunge and jump straight in, here are some pros and cons of starting a business in the UK that you should think about:
PROS
- You can choose your own hours and work around your other commitments, including children or caring responsibilities.
- You can work in a sector that you are passionate about and choose to work in a role you love.
- You have more control over your own income; you can set your own hourly rate, and work more hours when you need to.
CONS
- When you’re first establishing a business, this often involves working long or anti-social hours, including evenings and weekends.
- You will have to cope with not having a fixed income, which means what you earn could be unpredictable, particularly during the early years.
- You will have to deal with your own books, tax, and national insurance (NI) payments.
- You won’t have holiday pay or sick pay.
What Kind of Business Entity Should You Be?
There are five different types of business entities that you can choose from when you set up your own business, and this will determine your business structure. These are:
Sole Trader. This is the simplest kind of business structure to establish and is right for you if you intend to run your business as an individual. With this type of business, your personal and business assets aren’t considered separate, which means you would be personally responsible for any debts your business accrued. Any person working for themselves can register as a sole trader: you don’t need business premises.
Partnership. A partnership is similar to being a sole trader, but you go into business with someone else and you share responsibility for the business, including any business debts and business profits. You will need to draw up a partnership agreement that will outline how these should be split.
Private Limited Company. Also known as Ltd, this is a business that is its own legal entity and is completely separate from the people owning and running it. It means that the owners of the business will have no liability for any debts accrued by the company. If you opt for this type of business, you will need to pay corporation tax on any business profits and submit its annual accounts to Companies House.
Limited Partnership. This is a less commonly adopted model, particularly for new businesses. A limited partnership is a business model that must have at least one general partner and one limited partner. The general partner is responsible for running the business and the partnership’s debts, whilst the limited partner is liable for the amount they originally invested in the business.
Limited Liability Partnership. Similar to a limited partnership, a limited liability partnership is one which is a hybrid between a partnership and a limited company. It follows all the same rules as an Ltd, but it is established by two or more individuals.
Do You Need a Budget to Start a Business?
The amount of money you will need to start a business will depend on the type of business you are hoping to establish, but it’s important to think about what setting up your business will cost and what you can afford to invest before you begin. Make a budget that includes how much you will need to cover your personal costs such as your rent or mortgage, utility bills, food bills and childcare expenses. It is likely that you will need to cover these expenses from your own pocket for the first month or two as you’re establishing your business. Next, think about the costs involved in actually starting your business. These include:
- Renting a shop, office space, or other business premises. Include the cost of electricity and internet access in this figure, as well as just the cost of the rent itself.
- The cost of fuel, car hire, car leasing and vehicle maintenance, if you need a vehicle for your business.
- The expenses involved in setting up and hosting a website
- The cost of buying or hiring any equipment you need (this includes but is not limited to phones, computers and tools).
- Advertising and marketing materials.
- Recruiting and paying staff.
Do You Need a Business Plan?
Whilst it is not a legal requirement to have a business plan in order to start a business, you are strongly advised to write a business plan before you start your business. The two main reasons for doing this are:
- To give your business a firm basis: your business plan will help you to set out your objectives, develop ideas and plan the direction you will take your business in the short term.
- To present to external parties. This could be your bank, potential investors, or potential business partners. The more formal, professional and well-structured your business plan is, the more likely you are to attract the partners and investors that you need.
Taking Care of Taxes and VAT
As soon as you establish your own business, you’ll also need to register for self-assessment so that you can pay your tax and national insurance contributions.
As soon as you start making a profit, you will pay tax and National Insurance on your self-employed earnings in arrears. The tax year runs from April to April, and any taxes that you owe in that period will not be due until the January of the following year. The good news is that this means you have nine months between closing your books on a tax year and your tax year payment being due, which gives you nine months to prepare the funds you need.
This applies no matter what type of business you establish. If you’re setting up a private limited company (Ltd) or limited liability partnership, you’ll also need to pay Corporation Tax on your profits.
Do You Need an Accountant?
Many new business owners will ask ‘do I need an accountant?’ because they are concerned about the additional expenses that outsourcing aspects of their business management might incur. The simple answer to this question is no: There is no legal requirement or obligation to have an accountant for your small business in the UK. Many small business owners choose to manage their own accounting, at least initially, only handing over the workload to an accountant when it becomes too large to handle on their own. Others decide that they simply don’t have a head for figures, or that their time and skills would be better spent elsewhere in the business, and so they choose to hand the financial side of things to someone else from a very early stage. Only you can decide what will be right for you and your business. If you do decide to hire an accountant for your business, you should include the expenses involved in this in your budget and your business plan.
Conclusion
Starting your own business in the UK can be incredibly satisfying and rewarding. And the good news is that it doesn’t have to be as hard as you think. Many small businesses can be established with just a website and a good idea: If you have the idea but haven’t built your website yet then look to Thames Cloud Services website hosting. Thames Cloud Services has a well-deserved reputation for being one of the most efficient and reliable web hosting platforms in the UK, and they are a great place to start if you’re looking to create a high-quality website for your small business. Once your website is established, you can take on the rest from there!