The ultimate guide to setting up a business in the UK
For UK-based entrepreneurs, it’s far easier to set up a new business than you might think. In fact, if you know what you’re doing, it’s possible to get started in a single day. The number of people in the UK registering as self-employed rose to a record-high of 4.93 million in the first quarter of 2019, according to the Office of National Statistics, and they all had to take responsibility for establishing their businesses themselves.
For anyone who’s been thinking of starting their own business and becoming their own boss—either full-time or as a side-hustle—there are a few processes you need to follow to make it happen, which we’ll go through in detail here.
Write up your business plan
Every successful company starts with a business plan. This outlines your objectives and goals, giving you a series of milestones so you can accurately track your progress and success, and it’s not too difficult to write a successful plan. Detailing exactly what you intend to do, and how you will achieve these goals, allows you to spot any potential problems that may arise as your business progresses. This means you can prepare for any issues ahead of time, so it’s better to have this plan written up well before you begin trading. Being well-prepared in this way can reduce the risk of your business folding within the first few years, so it’s important you get this part right.
Your business plan should also forecast your cash flow and wider finances, which will initially estimate your costs and any potential profits. Ideally, your cash flow forecasts should cover your first three years of operation, and be able to justify the reasons behind the figures it uses. Having a solid business plan, with figures as accurate as you can make them, can even help you secure additional investment as you start your business.
Decide on and register your business structure
One of the most important parts of this process is deciding on the legal structure of your business, which can have a huge impact on how much you pay in taxes, your personal liability, and your eligibility for outside investment. Most businesses are registered as sole traders, limited companies, or partnerships, so it’s up to you to decide what your best option is.
Once you’ve chosen your business structure and the business name, you need to register with HMRC and let them know you’re becoming self-employed. This will have an effect on your taxes, so it’s important you do this as soon as possible.
Registering as a sole trader
Being a sole trader means you’re completely responsible for running your business and meeting all legal requirements. If you’re a sole trader, you can legally pocket any of the profits your business makes after tax. However, this also means that you are personally responsible for what happens financially, including repaying any debts. Starting the process is relatively simple—you just need to register for self-assessment with HMRC as soon as you start trading.
Registering as a limited company
Forming a limited company still gives you the benefits of trading as if you’re self-employed, but keeps your business’s finances separate from your personal finances. This means that, as the director, you won’t be personally liable for any debts incurred, and the most you can potentially lose is the money you invest. Limited companies must apply to be incorporated with Companies House, and must provide the following in their application:
*A company name and registered address *At least one director *At least one shareholder *Details of the company’s shares *Details about how the company is run - known as Articles of Association
Company directors generally run the business on behalf of the shareholders and can actually be both roles at once. It’s possible to register as a limited company online but this can get confusing, especially if you’ve never done it before. If you’re a new entrepreneur, you can seek help with registering your business to ensure you don’t make any mistakes which can have an impact on your company’s future plans.
Registering as a partnership
A general partnership involves two or more parties sharing responsibility for the business. Profits are generally shared equally, and each partner is in charge of paying the tax on their own share. Partners are also jointly liable for any debts and losses the business makes.
Registering as a limited partnership is similar to a general partnership, but there is at least one partner who runs the business and is personally financially liable—much like a sole trader. The ‘limited’ partner’s input is purely financial, and they will only be liable for the amount they initially invested.
Set up a business bank account
If you’re registered as a sole trader or part of a partnership, it isn’t necessary to set up a business bank account. However, if you’re part of a limited company, you will need to have a current account for your business to manage transactions, as it is legally a separate entity from your personal finances. When it comes to choosing a business account, you will need to take standing charges, transaction charges, and interest rates into consideration.
Even if you don’t need to have a business account, such as if you’re registered as a sole trader, we would still recommend setting one up, as it enables you to separate your personal finances from your professional ones, which makes handling your cash flow much easier.
Get the right insurance
Business insurance can be massively beneficial regardless of what kind of industry you work in. For example, you may want to take out a public liability policy to protect against any legal action in the event that your work injures a third party or causes damage to their property. If you employ anyone, you will also be legally obligated to hold employers’ liability insurance. If one of your clients makes a payment based on your business’s advice, you should probably hold professional indemnity insurance in case your client makes a financial loss. Getting the right kind of insurance may be an upfront cost you don’t want to make, but it can save you massively in the long run.
Set up your workspace
If you’re working from a home office, you should look into what business expenses you can claim. Depending on your running costs, you may be able to claim back a percentage of your household bills. You will also need to register your business as being run from the chosen address. This doesn’t necessarily have to be where you do most of your work, however. Virtual offices, for example, let you set your business address to a specific location without having a physical office space there. Any post sent to that address is then passed on to where you’re really based. It’s important you pick the right type of office for your business, as getting out of lengthy contracts can be a considerable and unforeseen drain on your bottom line.
Start accounting for all financial happenings
Whether you do this yourself or hire an accountant to look after it for you, you need to account for all the money that leaves and comes into your business. This makes tracking your cash flow much easier, and allows you to compare it against the forecast in your business plan. Keeping track of all your finances can also help you secure any more funding further down the line if you need to, while making it easier to work out how much tax you need to pay HMRC.
This was posted in Bdaily's Members' News section by Seetal Rihal .