If you’re a seasoned contractor or freelancer with a solid client base, you may have thought about taking the next step by running or growing a small business. This guide will help you understand what it takes to run a small business or start-up.
The first thing you need to confirm with yourself if you wish to start or grow a business is whether you have the time and confidence to handle the responsibilities of a business owner. Here are a few questions you should ask yourself to see if you’re ready to be an entrepreneur:
- Can I put in the hours? – Running a business takes time and energy, and there’s no real way of avoiding the admin of a small business; you should feel ready to take on the extra duties of a business owner.
- Can I handle any stress and hardship? – You must be willing to power through hard times, because the life of an entrepreneur is not without risk – like contracting or freelancing but on a greater scale.
- Do I have a clear business plan? – If you wish to sustain and grow a business, you need to have a business plan to illustrate how you’ll attract new clients. And if you need funding down the line, your business plan should be able to attract investors.
- Is my business proposition solving a problem? – Half of the start-ups and small businesses in the UK fail for a variety of reasons, including lack of funding, timing, and a lack of differentiation. Why should someone hire your services or buy your product over someone else who is offering the same thing?
These are just some of the questions you should be answering ‘yes’ to if you want to start a business. Many professionals begin contracting or freelancing to get away from confining 9 to 5 working hours or to have more time for themselves; however being an entrepreneur is not the same – it can be very rewarding but you have to be sure you are ready.
Once you’ve answered the above questions, there are some other factors to consider – from obtaining funding and hiring employees, to purchasing small business insurance and getting your own office.
How do I get funding for my start-up/small business?
If you’re looking for funds to start a business but your personal savings don’t quite cut it, you could look down other avenues. Organising funding in advance can help you get the business off the ground – and here’s what you could do to find the right funding:
- Figure out what kind of funding you want/need:Try working out what your start up and operating costs will be for your first year of business. Compare this against your anticipated turnover and how much personal funding you can put into the business. This will help you determine what you may need to borrow.
Here are a few options for funding:
Small business grants – a grant is funding that doesn’t need to be repaid. These are somewhat difficult to secure – you’ll require a brilliant business plan. Several government schemes offer grants for businesses, along with other business support organisations. This website can help you find grants and other funding options.
Equity financing – equity financing involves raising funds for a business in exchange for part ownership of that business. Equity financing could include providing the investor with preferred shares or common equity in exchange for funding – this allows the investor some share of future business profits.
Equity financing can be a great way to get funding as you often get a mentor along with funds for your business.
Another option is equity crowdfunding. Some equity crowdfunding sites include CrowdCube and Seedrs. Some crowdfunding sites, however, denote offering products, services or accepting donations in exchange for funding.
Loans – this method is quite common for small business owners who don’t have a sizable pot of savings. A loan could be provided by a bank, another company or even the government. A loan will have a payback term and interest added to the principal.
When you apply for a small business loan, you’ll be required explain the purpose of the loan, your business plan and projections, and your ability to repay the loan.
The above are just a few of the routes you could take to get funding for your start-up or small business. It’s easier to start with personal savings, but there are other options available if you need them. Do your research to see what’s available to you and contact a financial advisor if necessary.
What do I need to know about hiring employees?
If you’re going to be employing staff for the first time, there is a checklist you need to follow. The following will help you get started:
1. Employers’ Liability Insurance: all employers are required to have Employers’ Liability insurance, as it will cover you for compensation of an employee who is injured or ill as a result of working for you. Your cover must be at least £5 million – if you are not insured, you could be slapped with a £2,500 fine for each day your business is not insured.
2. Register as an employer with HMRC: if you’ve already worked as a single director of your own limited company, you’re already registered as an employer. If this is your first go at employing someone, you need to register as an employer with HMRC. This is for income tax (PAYE) and National Insurance purposes and is required if you’ll be paying your employee at least £113 per week.
Most businesses can register online, but some may need to do it by phone or post. Luckily, an accountant can help you with this part so you can focus on other tasks involved with setting up your business.
3. Automatic pension enrolment: employers must provide an automatic pension enrolment scheme for employees who are eligible. This includes anyone between aged 22 and the State Pension age, who are working in the UK and earning at least £10,000 per year. There are certain requirements to be met for automatic enrolment – this guide provides some useful information.
Other important things to consider: When you employ someone, you’re responsible for deducting income tax and National Insurance from your employees via Pay As You Earn (PAYE). You will also have to pay employers’ National Insurance on your employees’ earnings over a certain threshold. Therefore, you need to make sure you’re prepared to meet the responsibilities and obligations as an employer.
This is why most small business owners and start-ups have help, whether it’s an advisor, an accountant, or a knowledgeable business partner. Contact us for your small business needs.
Do I need small business insurance?
We’ve mentioned the need for Employers’ Liability insurance if you will have staff, however there are other types of insurance you might consider for your small business or start-up:
- Professional IndemnityThis type of insurance is important, especially if you provide a professional service or advice. It could protect your business financially from demands for compensation or legal costs as a result of a mistake you or an employee may have made whilst carrying out work for a client.
- Public LiabilityPublic Liability protects your business from claims made by the public or a member of the public when damage or injury to them is blamed on your business. For example, if you’re a lawyer who opens a practice, and a client slips on a patch of wet floor in your office, claims made against you could be covered by Public Liability.
- Product LiabilityIf your business sells products, Product Liability insurance protects you if one of the products you sell causes damage or injury to a member of the public. This includes legal costs and compensation amounts.
The right combination of business insurance depends not only on what type of business you have but where your business is located, for example in an office or shopfront.
Getting your own office
Most start-ups begin in someone’s den or home office and only move to a separate office space when the business has made enough money. Therefore you don’t necessarily need to worry about getting an office unless you have the funds to spare and you really need a separate space for your business.
The alternative option, if your business doesn’t require you to have a shopfront or an office, is to join a coworking space or desk share. This method is incredibly popular with entrepreneurs and fledgeling businesses. Coworking spaces allow you to, for a fee, book out a desk or pop into the communal working area as needed. You could benefit from a stimulating work environment and facilities such as printing and meeting rooms. It’s also a good place to network and meet with business contacts.
Managing paperwork and business administration
Starting your small business can be an uphill climb, and running one takes dedication and work. Ongoing work involved in running a business includes invoicing, running payroll, filing VAT returns and paying VAT, managing finances, paying Corporation Tax, completing annual accounts, submitting a Confirmation Statement, issuing payslips and P60s to employees, and more.
Does this sound stressful? If so, don’t worry, even the savviest entrepreneur needs help with behind-the-scenes admin. It’s not weak to ask for help – in fact it’s recommended. Hiring an accountant or advisor can help you keep your business on track financially.
Churchill Knight & Associates Ltd provides accountancy services for small businesses, and we can be your partner in helping to ensure your business is on the right path. With Churchill Knight, you’ll get a friendly accountant whom you can count on, and who will get to know your business inside and out.
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