When making the decision to be a self-employed worker, there are many different things to consider before getting started. If you are making the leap and choosing to set up as self-employed, make sure you take the right first steps.
Understand what self-employment will mean
Before deciding to be self-employed, make sure you understand what you are taking on. If you choose to be self-employed, rather than work for an employer, who is taking complete responsibility for your business.
It is advisable to have a clear business plan before setting up – this means knowing what the business will entail, what equipment you might need, the price of goods and services, the goods and services offered, your clientbase and how you will be reaching them, whether you will be employing other staff and when and, of course, how much you expect to earn.
Make sure you know the difference between a sole trader and a limited company
It can be difficult to get lost in all the jargon involved with self-employment. You will need to make a decision as to whether you want to be a sole trader (self-employed) or whether it is better for you to set up as a limited company. If you set up as a limited company, ownership will be split across equal shares. A sole trader, on the other hand, means that the business will be fully owned and controlled by you and you will have personal liability for the business.
Choose the right name for your business
It may seem like an obvious first step, but before setting up your business you will need to think about what you will be calling it. You can trade under your own name or choose a specific business name. Whatever you are deciding, there are certain rules to adhere to including not copying any existing trade marks, not choosing anything offensive or falsely implying that your business is a limited company if you are a sole trader (for example, using the words “limited” or “ltd”).
Know how you are financing your business
You could have the best idea in the world but unless you have a realistic strategy for how you will be making money, your business will not be viable.
As part of your business plan, you will need to know how much money needs to be spent and in the early stages of the company you will probably need to invest your own money so you will need to make sure that you have enough saved.
For funding, you may need to consider what type of loans are available for people who are self-employed.
Generally speaking, if you are self-employed you will need to show lenders records of your payments; typically, you will need to show at least 2 years of trading accounts in order to qualify.
Be aware of your responsibilities
If you are setting up as a sole trader, it will be your responsibility to inform HMRC that you will be paying tax through Self Assessment. You will also need to make sure that you are filing your tax returns annually and paying the right type and right amount of tax. Working with an accountant or bookkeeper can help you stay on top of this.
One of the best practices you can get into if you are self-employed is keeping a record of all of your expenditure, cash flow and revenues. All of these records will not only help you to manage your finances better but it will also act as an invaluable resource if you are applying for funding in the future.