Setting up a small business: what you need to know
Wouldn’t you love to work for yourself? To not have to answer to a boss and have complete control over the general operations? It’s a dream a lot of people have, but when it comes down to committing to setting up your own company, it can be quite scary. The laws surrounding setting up and managing a business can be confusing, but once you know the basics, it’s a lot easier to do than you may think.
Most businesses in the UK are categorised as either sole traders or limited companies of a partnership. Of these, the easiest type of business to apply for and open is a sole trader. This means that you are the sole owner of the business and that you’re technically ‘self-employed’. Under this category, you can work alone or employ staff as you see fit.
But before you get to the hiring stage, there are a number of steps to go through to ensure you’ve followed the correct government procedure – namely making sure you have the correct legal documentation in place.
To start your own business and become your own boss as a sole trader, these are the steps you need to take:
1. Register your business
First things first, you need to officially register your business before you start any kind of work. To do this, you should apply through HM Revenue and Customs. Once you’re registered, you’re considered responsible for your business debts, all bills for anything to do with the business (electricity and equipment, for example), keeping records of all of your expenses, submitting annual tax returns and paying National Insurance and income tax on profits.
2. Apply for a licence
Not all companies require licences, but it’s wise to look into licence requirements before you start operating as a business in case you’re required to have one – it could save you hefty fines later. If you want to open a bar then you’ll need an entertainment license.
3. Set up a bank account
It’s a good idea to set up a separate bank account for your business. This makes it easy to keep your personal expenses and business finances separate, which subsequently makes it easier to manage your money and to organise your company finances come tax time.
4. Pay National Insurance and VAT
As a sole trader, you’ll be required to pay NI if your profits exceed £5,725. Also, if you have employees, remember that you’ll need to deduct NI contributions from their wages. For VAT, you’ll need to register with HM and Customs if your business turns over more than £79,000 annually.
5. Find out if you can receive financial support
Some businesses are eligible for financial support in the form of government grants. While you won’t need to repay this money, there’s often stiff competition and the grants are usually awarded for a specific project. Don’t bank on a grant for funding though because they usually only cover part of what you need and can take a long time to get (if at all). If you do need additional financial support to fund your business, then consider loans, overdrafts, shares and leasing of equipment.
6. Know employee rights
Employment law can look complicated and is always changing, so it’s important to stay informed on the legislation. As a general guide, if you’re employing staff for the first time, then there are six things you need to address. Firstly, decide on what wages you will pay (these must meet the National Minimum Wage which differs for age and experience). Then you should ensure that your staff have the legal right to work in the UK. You also need to get employment insurance and register your employees with HM Revenue and Customs. Your employees will also need to be given a written contract (including terms and conditions) regarding their job role and company policies. And lastly, you need to give your staff a statement showing wages and any deductions you have made come pay day.
While these are the necessities of starting a small business, there are a number of factors that any smart business owners should consider before starting a business.
For example, cash flow is the lifeblood of any business. Therefore, you must ensure you have steps in place to secure your business’s income and avoid falling into debt. For example, you need to decide how you are going to approach customers who don’t pay you on time and you should ensure that you manage your finances so that income exceeds your expenditure.
Also, if you’ve come up with a fantastic new business idea, then you can protect it from competitors who could potentially copy it. This can mean patenting an invention or applying for intellectual copyright.
Additionally, you need to think about where you’re going to have your business premises. Some properties will require planning permission for change of use, while if you’re thinking of starting your business at home, then you’ll need to find out if any restrictions apply.
These are just a few examples of things to consider. If you’re interested in starting a new business, you should take a look at our information on business services.