If you’re thinking about setting up your own company, here are the things you need to look at before you start
The UK is full of great entrepreneurs, with a record 660,000 new businesses set up in 2018. If you’re seriously considering setting up your own business, here are ten things you need to think about.
Do you need to quit your job to work on your idea or can you do it on the side?
Getting things off the ground during your evenings and weekends while keeping your regular, paid job on the go can reduce your risk of cash flow issues and give you some financial security as you get your business going. If you think you can manage the extra workload and you’d benefit from staying employed to pay the bills, this can be a sensible plan – but working longer hours is tricky to maintain in the long term. It’s a good idea to set a time limit for this plan, and then review whether you need to reduce your hours in your main job, quit altogether, or hire someone to run your business.
What sort of company do you want to set up?
There are lots of different company set ups. These can include sole proprietor (where it’s owned and run just by you) limited companies (where there can be a number of directors and your responsibility is limited by shares), partnerships, not-for-profit companies and social enterprises. Limited companies are the most common type, but if your company has a clear social benefit, the advantage of becoming a social enterprise is that you may be able to apply for something called social enterprise investment finance. It can be difficult to change the structure of your company once it’s set up, so it’s worth taking the time to think about which is best for you at the beginning.
What are your personal financial plans and how will being a business owner affect them?
If your income comes from the business you’re setting up, this can affect your credit score and ability to get a mortgage. So, if you’re planning on applying for a home loan, it might be a good idea to do this before you give up any regular income from employment and set up your own business. A lender would need to see two to three years of company accounts before offering a home loan based on your income from the business.
Are you the right person to run the business?
It’s one thing starting a business, but it’s another thing doing everything. Look at your business plan and decide if it’s realistic for one person to do it all. If not, think about what staff you’ll need to hire and how much their salaries will cost.
Will you need any funding?
If you need some money to get you going (to buy equipment, for instance), there are lots of finance options for start-up businesses, including grants, loans, seed funding, angel investment and venture capital – visit the Great Business website for more information on this. Some offer loans that you repay, while others will want you to give up an equity stake (a percentage of the business). The best option for you will depend on the type of business you want to start, how much money you expect to make and how quickly you think you’ll grow. It also depends on the type of product or service your company’s offering.
Have you got a head for admin?
Running a business involves a lot of regular filing of official documentation, such as share ownership transfers, company accounts and tax returns. You need to register the company with Companies House and HMRC. You’ll also need to file company accounts and decide when you want your reporting year to begin and end. If the thought of this puts you off, then hiring an accountant, who’ll tell you what’s due and when and work it all out for you, is a good investment.
What tax will you have to pay?
Businesses pay corporation tax, and those that rent shop premises will also pay business rates. Some charge and pay VAT. It’s important you have an idea of how much tax you’ll need to pay, because that’ll influence how much you charge for your services. You can find out more about corporation tax, business rates and VAT at GOV.UK.
Are you offering something different?
Before you launch your business, research the market. Is there anyone else doing something the same thing, or similar? How can you do it differently? Market research is also important for working out your prices as you’ll need to find out what people are actually willing to pay.
How much will you charge for your product or service?
It’s important to have an idea of what you can charge for what you want to offer, and whether this’ll cover your basic overheads.
What are the risks for you and your new business?
Risks can come from anywhere, from family illness, to government regulation and tax increases, to new terms of trade. Take note of any risks you might come across and try to have a plan in mind for what you’d do if they happen.
More on managing your finances
How to boost your pension pot
It can be hard to save enough for retirement when you're buying a home and raising a family, but it’s never too late to give your pension pot a boost.
Getting your children to save
They may not thank you for it now, but one of the best things you can give your children is good financial know-how.
Prioritising your debts
Debts can make you feel like burying your head in the sand. But prioritising can help you to manage what and how much you owe.
What type of cover is best for you?
Life insurance can help to protect you and your family should the unthinkable happen. But are you clued up when it comes to the type of cover you need?
Why is making a will important?
If you don’t make plans on how you want to distribute your wealth once you’re gone, you may leave a host of problems behind.
Are you paying too much tax?
Making sure you're on the right tax code will help you to avoid losing too much of your hard-earned money.