Five years ago I decided to start my own business. I was motivated by the usual suspects: the drive to be my own boss and the passion for making exciting things happen for myself and others. I’ve since discovered a further motivation: the need to do something positive and inspirational in a world that at times seems pretty grim. Now, I’m not going to tell you that starting your own business is for everybody, is easy, or cover it in rose-tinted promises of wonder. But I will tell you how to do it.
Please note the following advice is for businesses in the UK and some aspects such as legal set-up may be different for other countries.
Do your research.
Never think that passion and a nifty idea are all you need to start a business or go freelance in your line of work. The first building block of a business is research. Well, you’re here, so that’s your first pat on the head. Research also isn’t a thing you do once and then never do again. The market your business lives in will evolve continuously, so you must too. Sign up to relevant newsletters and stay ahead of current affairs in relation to your specialism to keep up to date.
But your first step is to prepare and implement a research strategy. What do you need to know about your field of work? Who are your competitors? If your business crosses different areas, do you have multiple sets of competitors? Bees Make Honey is a social enterprise that supports itself through grants funding and income streams such as event management, copywriting, graphic design, and business coaching. So our competitors for grants funding include organisations both in the charitable and social enterprise sector, and also the arts sector. Our competitors for income streams include freelancers, creative studios, and educational organisations. So we need to keep ahead on quite a wide range of topics. Initially, this was a lot of research, as you can imagine. By now it’s a matter of reading newsletters and chatting to my contacts.
Decide on your legal set-up
This is how you literally (in the eyes of our BFFs HMRC) set up a business. The easiest is to become a soletrader. This doesn’t cost anything if you do it yourself and is very easy to do. It is a good option for most freelancers and for many businesses in the initial stages when they want to test trade a little before working out a more committed business plan. You will need to do an annual tax return. This is also pretty simple, though some of the questions you get asked on the HMRC form can be confusing. So, it’s worth getting some cheap or free help with the first one when the time comes. It doesn’t need to be an accountant, just someone who has done it before. I used a bookkeeper (my friend’s mum) and she charged me £20. It was worth it for the peace of mind.
There are various other types of business you can form which are a little more complicated. There is a list and plenty of guidance on Gov.uk here, so have a good read. You should consider becoming a Limited Company if there is significant financial risk involved. This protects your personal assets if the business goes under or if someone wants to take legal action against the business for any reason. Bees Make Honey is now a Community Interest Company (CIC). This means we are a Limited Company, but also that we officially reinvest any profits in community and business development, rather than them going into the pockets of our CEO (me!) or shareholders. If you’re interested in starting a social enterprise, there’s more guidance on Social Enterprise UK.
If you do become a Limited Company or anything more complicated than soletrader status, I recommend getting an accountant. It is worth paying a few hundred quid per year for the peace of mind, believe me, as someone who has tried to wing it once too often. You should also get an accountant if you’re registered for VAT.
[Edit 25/04/17 HMRC have just set up an online forum to answer FAQs on set up & end of year accounts, click here.]
Decide if you need to be VAT registered
Whether or not you should register for VAT depends on two things. Firstly, whether most of your trading is business-to-business (B2B) or business-to-customer (B2C). Secondly, if your income is over the VAT threshold.
If it’s B2B, ie. if you’re mostly selling goods or services to other businesses, particularly large businesses, it may benefit you to register for VAT, even if you’re below the threshold. Large VAT-registered businesses tend to prefer working with other VAT-registered businesses as its a mutually beneficial system.
If it’s B2C, ie. if you’re mostly selling goods or services to individual customers (people, rather than organisations), then you are unlikely to benefit from registering for VAT if you are below the threshold to legally have to.
You need to check if your business’ income (or projected income) for the year is over the VAT threshold. If it is over, you legally have to register for VAT. There is some wiggle room if your actual income is significantly more than you predicted, taking you over the threshold. So, don’t panic, just speak to an accountant.
For more information on how VAT works and to check what the threshold is right now see: Gov.uk here.
Get Some Insurance
Whatever type of business you have, I recommend getting some insurance. The most commonly needed insurance for businesses is Public Liability Insurance (PLI). If you are a freelance creative practitioner, I recommend taking up membership with a-n (Artists’ Network), as this membership includes Public and Product Liability insurance for £36 per year, alongside a range of other benefits. This will probably work out cheaper for you than getting an insurance quote yourself. Insurance companies aren’t great at understanding the Arts World, so the more different things your business does, the more they rack up the price!
Public Liability is your basic insurance (because the general public are a liability), you will be required to have this for various things, e.g. selling products or offering advice at markets and fairs. Many grants funders also require you have basic insurance. If you’re a designer-maker selling products then Product Liability may be good to have, though I would weigh up the risks on this. It’s pretty essential for e.g. fine jewelry makers, but if you do cards and inexpensive prints, you’re unlikely to need it that badly. Of course best practice is to insure everything. The decision is up to you, not me (!), just weigh up the cost versus risks and make a sensible decision.
If you’re offering any kind of service that delivers advice, mentoring, training, then it’s a good idea to have Personal Indemnity. This protects you if someone decides to sue you for giving them ‘bad’ advice.
If you have a payroll with employees registered through PAYE (rather than using freelance workers), then you legally have to have Employer’s Insurance.
There are various other types of specialist insurance that may be relevant to your field, so as always, do your research! Have a think about what you need to protect if something goes wrong.
Get a designated bank account
Whatever type of business you set up, get a bank account separate from your day-to-day personal current account. This will make life a hell of a lot more easier when you do your accounts as you can see all income and expenditure specific to the business, rather than have it mixed up with your food shopping and record buying habits. It will also look much better should you face any kind of audit from HMRC (be it personal regarding benefits/tax credits, or business related).
The next question is should you get a ‘business bank account’? There are two things to consider here. Firstly, cost. Secondly, credit history.
Business bank accounts are usually free for the first 12-18 months but then you may find yourself getting charged fees for every damn transaction. This is what happened to me at a time when my income was pretty low and a lot of small transactions were going in and out of my account. It was awful. As a soletrader on a fairly low income you can just have a separate ordinary current account. This would’ve been best for me in the beginning.
Credit history. Your business will have its own credit history as an entity. If you don’t have a business bank account, it’s difficult to have a ‘good credit history’ in the eyes of anybody you might be seeking a loan or other financial help from. So, it may be worth considering your options.
If you think you do need a business bank account, do your research and find one that has affordable monthly fees, rather than charging for every transaction. Santander is used by many businesses for this reason. These days, Bees Make Honey qualifies for a free community business bank account with the Co-operative Bank because we are a social enterprise (CIC), which is a bonus.
Next time… That’s the end of Part One folks. You can find Part Two here, which covers how to name your business, how to identify your target audience, how to market your work, setting up an accounting system, seeking funding and investment, and bootstrapping your business.
Don’t forget to do your research, here’s a list of useful links you may need to become acquainted with.
If you would like some advice on your business and live locally, we do affordable 1:1 sessions. More on this here.
Kirsty Fox is a writer, business coach and social entrepreneur.