Due to the pandemic and global uncertainties, more people than ever have decided to take the leap into self-employment, to take back control over their future and their finances.
However, the stark reality is that starting a business isn’t as simple as it may seem and a massive 60% will fail within their first three years, with 20% not making it through the first year alone.
Of course, it’s not just start-ups that would benefit from a health check of their business and its processes. Take a look at the following tips:
- Choose the best business structure
You’ve got a fantastic idea for a new business and you’re excited to get started. You may have heard the terms “sole trader”, “limited company” and “partnership” but what do they actually mean and more importantly, which one do you want to be? Although you can switch from one to the other, it’ll save you a lot of time and hassle to get it right at the beginning. Don’t just launch straight in as a sole trader – have a think about who your customers will be (see tip number 2 below!) and whether you want to grow. Bear in mind that each structure has its own benefits and drawbacks – we always recommend speaking with an accountant early on to get some much-needed tax advice too.
- Identify your ideal customer
Setting up a new business can be daunting and there’s a lot to consider but it’s crucial to identify from the outset who your customers will be. Will you be working with consumers or commercial customers, or both? It may not important, but consumers (individuals) are legally entitled to extra rights, because they’re not considered to have the same bargaining power as businesses. You need to be mindful of offering a 14-day cooling-off period within which they can change their mind and cancel the contract for any reason. On top of this, if you don’t tell the consumer of their legal rights, they’re entitled to extra rights. Decide who you want to sell to and work back from there.
- Get your paperwork right
When you start trading, you will need to send out quotes and invoices to let your customers know how and when to pay you. There is certain information you must include to make these valid. Firstly, you must state your company name in full. As a sole trader, you should include your own name, your trading name and a contact address. If you are a limited company, you will also need your company number and registered address. If you’re VAT registered, you must include your VAT number.
Don’t forget to clearly specify who the customer is, with their full business name where applicable.
Dates are important too. Quotes should have a due date and an expiry date – with rising material costs, you may want to shorten the amount of time the customer has to accept it, to reduce your risks. Invoices should always have a date of issue and a due date.
- Beware of purchase orders
You’ve had your first commercial customer say they want to go ahead with your quote – that’s great. However, if they issue a purchase order, beware. POs will almost always, in tiny writing, specify that it’s subject to the customer’s terms and conditions. These are likely to be completely irrelevant to the work you’ll be doing. If you’ve got your own Ts & Cs, then just thank them for the order and state that it’ll be on your own terms – it’s generally whoever says it last that wins.
- Don’t forget about sub-contractor risk
If you’re scaling up and looking to outsource some work to a sub-contractor, don’t forget that relationship will have its own risks too. If your sub-contractor doesn’t show up or does a shoddy job, your customer won’t have a direct contractual route to them – they’ll have to come through you. Having a written agreement in place with your sub-contractor will make them take your work more seriously and it’s a tick in the right box for HMRC if they ever investigate whether they’re employed or not. Think about what could be at stake – your intellectual property, your materials, your reputation – and don’t take all this for granted.
Starting a business can be scary but provided you have the right set-up from the beginning, you can feel confident you’ll be one of the successful ones.