New entrants into the world of entrepreneurship in Britain today are coming thick and fast.
In 2019 City A.M reported a continuing upsurge in start-up companies, with 660,000 new registered businesses signalling a record high.
But it’s not just energetic youngsters that have a healthy appetite for start-ups. According to a study by Axa back in 2016, 10% of over 55s (with average pots of £550,000) were planning to using cash from their pensions to become entrepreneurs.
So how do you go about it?
Launching a new business requires planning – and crucially, funding.
The planning part is all about forming an idea, researching the market and eventually testing it. Think about how to find some real customers to buy and use your product or service.
Once you’re happy that your idea will work, it’s time to fund it.
Getting financial backing can be a challenge as banks have tightened up their lending to small businesses considerably in recent years.
A good business plan will enable banks to gain a distinct picture of a company explaining - in plain English - what your product or service is, any key features of your specific industry, your target market and the competition you will face. You will need to explain sales and marketing – that is, how you’re going to get business, and how you will sell.
In the event you get turned down, there are now a number of other funding routes available, such as peer-to-peer lending and crowdfunding.
Setting up your business
An accountant can talk you through the different ways in which you can start a business as a sole trader or perhaps as a limited company.
It sounds complicated, and while there are some complex structures, you can set up a business overnight with a quick phonecall to HM Revenue & Customs to register as self-employed and off you go.
You may want to start small, depending on your trade, in which case from home is ideal as overheads are kept to a minimum.
A limited company will need more organising, and your accountant will be invaluable here.
You will also need to decide if you can work from home at the outset to save on costs, or if you need to look at renting office space.
Home office versus renting office space: which is best for you?
Once you get started, you don’t have to be alone, even if you are based at home. There’s lots of support these days to get you out and about.
“Tech hubs” are springing up all over larger cities encouraging development. These so-called hubs offer the opportunity to work in an office space with other start-ups, giving you access to a wide range of events and connections with key business institutions and experts.
Entrepreneurs should remember they cannot do everything on their own. A great innovator might not have the commercial skills to run a business. So take all the advice you can get.
There is a wealth of help around for small businesses whether you’re just starting out or wanting to expand.
StartUp Britain, a government-backed national enterprise campaign, aims to provide inspiration and support to aspiring entrepreneurs offering tips and advice and before, during and after.
There is also help available online at betterbusinessfinance.co.uk, startupdonut.co.uk and also from the government business support helplines
What insurance do you need?
When setting up a small business, organising insurance may not be top of your “to-do” list – and can feel like a hefty expense. But it’s important to ensure you have protection in place to cover against the risks you potentially face.
If not, you could find yourself in trouble should the unexpected happen.
A good business insurance policy will pay out for things, such as compensation payments and legal costs.
Here are some of the different types of cover you might want to consider. While only one type is mandatory, the others offer a useful safety net:
Employers’ liability insurance
As a small business owner, the only type of insurance which is compulsory is employers’ liability insurance.
This is a legal requirement when you take on your first employee.
This will help you pay compensation if a worker gets ill or injured because of the work they do for you.
Your policy must cover you for at least £5 million, and must come from an authorised insurance firm.
Fail to put this cover in place, and you could be fined up to £2,500 for every day you’re not properly insured.
For example, this cover would kick in if a waitress in your restaurant made a claim after falling on an area of damaged flooring and broke an arm.
Professional indemnity insurance
Professional indemnity insurance covers losses incurred by clients as a result of mistakes or bad advice, such as breaking copyright rules, or giving advice which results in your client losing money.
If you offer a professional service or provide advice, this type of cover is particularly important.
For example, all accountants should have professional indemnity insurance, so if they give bad advice that costs a client money, the client can regain some or all of the losses.
If your client does demand compensation from you, you could use your professional indemnity insurance to cover any legal costs, as well as compensation payments.
Public liability insurance
If you run your business out of premises, you should have public liability insurance in place. This covers injury to a member of the public.
This cover would kick in if, for example, a customer made a compensation claim after slipping on a spillage on the floor of your shop.
Product liability insurance
Product liability insurance covers the cost of compensating any member of the public who gets injured or damaged by a faulty product that your business designs, manufactures or supplies.
This could be the case if a child got injured by a toy you sold with a design fault.
In this scenario, you could use your product liability insurance to pay any compensation claims made by the buyer.
Buildings and contents cover
If your business is based in a premises (such as an office or shop), you should have cover for your equipment and stock.
If your small business is based in a co-working space or serviced office building, you need to know exactly what cover is provided by your landlord. It might be the case that the landlord has insurance for common areas of the building, but that you have to insure anything you take into the office, such as your computer.
If you operate out of premises which you own, you will need to think about buildings insurance as well as contents cover.
If you work from home, you also need to check you have the right cover in place. Working from home doesn’t necessarily mean you need to take out different cover. But you should read your home insurance policy terms and conditions carefully to check whether business activities are covered. You might find you need some additional cover.
Does your business need to be VAT registered?
When you run your own business, it’s easy to get carried away with the day-to-day operations. But it is vital that you don’t ignore important issues around tax.
Here we take a closer look at when you need to register for Value Added Tax (VAT).
When do you need to register for VAT?
As a business owner, it is good practice to keep tabs on how your business is doing, and how much you are making.
Crucially, if your business has a turnover of taxable goods and services of more than £85,000 in a 12-month period, you must register for VAT. Failure to do so can result in fines.
You will need to do this from the first day of the second month after you exceed the threshold. For example, if you exceed it in mid-November, you are required to be registered from January 1.
Even if your business has not yet reached the £85,000 threshold, you may want to register voluntarily for VAT. This can be very beneficial for new and small businesses.
For example, registering for VAT can make sense if you make the overwhelming majority of your sales to VAT-registered businesses, as you can then reclaim VAT on any business expenses you incur.
This can be particularly helpful in the early stage of setting up a business, when you are paying out a lot of money on products, stock and tools, but not necessarily invoicing for big amounts.
The refunds you will receive from HMRC can help to ease cashflow too.
In addition, voluntary VAT registration can make your company appear larger and more established. This can be appealing to other VAT-registered businesses and clients.
How to register
To register for VAT, you will need to complete a VAT application form from HMRC. You can do this online or fill in a paper copy and send it back.
Once you have registered for VAT, you need to charge VAT at the standard rate of 20% on the goods and services you sell.
You can then also reclaim any VAT paid on goods and services purchased for your business.
But don’t forget that once you have registered, you will need to complete quarterly VAT returns online.
Each return will need to set out how much VAT you have charged, and how much you have paid.
If you have charged more than you have paid, you will need to make a payment to HMRC.
What are the implications of being VAT-registered?
If you are registered for VAT, this will mean your prices will be more expensive for customers who are not VAT-registered, and who cannot claim back VAT.
This can potentially be off-putting, and it can also mean you are less competitive than firms which are not registered.
If your taxable turnover goes over the threshold temporarily, you can apply for a ‘registration exception’.
To do this, you need to provide HMRC with evidence, and explain why you think your VAT taxable turnover won’t go over the de-registration threshold in the next 12 months.
HMRC will then consider your exception. If it agrees, it will write to you and confirm the exception.
If not, HMRC will register you for VAT.
For more help
If you need help with VAT or other tax issues, it is worth seeking help from a professional who can help.
Try an organisation, such as the Institute of Chartered Accountants in England and Wales.
Also visit gov.uk/vat-registration/when-to-register
For more tips and useful information, browse our business and work articles
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