30/07/2008

Being your own boss can be extremely rewarding, it allows you to reap the rewards of your own hard work as well as giving you the opportunity to improve your work life balance. It is not a decision to be taken lightly, however, particularly if you are giving up the security of a regular salary. You need to plan carefully to avoid the pitfalls.

First, what product or service are you going to offer? You probably already have an idea as to what you want to do. Consideration will need to be given as to the likely demand for the product or service you intend to offer and the price you intend to charge. You will need to be comfortable that you will be able to sell sufficient units to make your proposed venture a viable prospect. 

Analyse yourself and your business environment. When you start your own business, you are dependent on your own abilities, you no longer have an employer to offer support. You need to consider whether you have the necessary skills to run a business. Carrying out a SWOT analysis will allow you to identify your Strengths and Weaknesses, as well as the external Opportunities and Threats you face. 

An understanding of your own strengths and weaknesses will allow you to decide on what parts of the business you can deal with yourself and which areas, if any, you will require assistance with. The external review will allow you to uncover external opportunities that you are well placed to exploit and by understanding the weaknesses of your business, you can manage and eliminate threats that may otherwise catch you off guard.

If you intend to use a trading name for the business, restrictions may apply depending on the legal structure of the entity. If you plan to set up as a limited company, you cannot incorporate under the name of a limited company already in existence. Check the Companies House webseite, here. 

If you are setting up as a sole trader or partnership, check in local phone books and business directories to ensure that the name you intend to use isn't already used locally.

Re financial forecasts, preparing them will allow you to estimate how much revenue you will need to generate in order to cover your business overheads as well as drawing an income to meet your personal expenditure. 

Cash flow forecasts will assist you in identifying how much capital you will require to invest in the business or, if you intend to borrow, how much funding you are likely to require.

Regarding marketing, you will need to decide on how you will market your new venture. It may be the case that you already have an existing client base and you will simply need to let your contacts know what you can offer them. If you are planning to advertise or use mail drops you will need to budget the costs of doing so into your forecasts. Many local enterprise groups host networking events which enable you to meet other business people in your area.

You may feel that you require training to strengthen your ability to successfully run your business.  Look into courses offered by local colleges, Chamber of Commerce or enterprise groups. 

Of course, you will need to consider the legal structure of the proposed venture. You may decide to set up as a sole trader, enter into a partnership with others or create a limited company as your trading vehicle. The tax implications differ between these trading entities and, as such, you may want to appoint the services of a professional advisor to recommend which structure will best suit your circumstances. 

Once you have decided on your legal status, you will need to register your venture with HMRC.  If you intend to employ staff, you will also require to register for a PAYE/NI reference to allow you to deal with the tax on your employees' salaries. 

Depending on your anticipated turnover, you may also need to apply for a VAT registration number. At the time of writing, the VAT registration threshold is annual turnover of £67,000, but this changes from time to time.

More information relating to all aspects of tax including details of how to register can be found at www.hmrc.gov.uk.

Funding: You may intend to approach a bank for funding. Many banks require personal guarantees even if you have opted to set up a limited company. You should identify whether grant funding is available for your new venture. Local enterprise groups should be able to assist.

Trading premises: You will need to decide on business premises. Working from home is obviously less costly but you may not have sufficient space. If you intend to lease premises it is worth using the services of a lawyer to ensure that any agreement you enter into is not too onerous.

Book keeping and accounting: It is important to keep accurate and detailed records of your business transactions. You may decide to employ the services of a bookkeeper. If you are setting up as a limited company, you will almost certainly need to appoint an accountant to prepare year-end accounts for lodging at Companies House.

Insurance: Depending on the type of business you intend to run, you may be required by law to take out insurance. You may require public liability insurance, employee liability insurance, premises or contents insurance. 

Licences: Some ventures will require to be licensed. Licence applications often take some time to be processed so you will need to ensure that your application is submitted in good time for your intended start date.

Business Plan: It is a good idea to incorporate all of the above matters into a business plan.  Practical advice on preparing a business plan and all aspects of business start up can be found at www.businesslink.gov.uk.  A business plan will almost certainly be required if you are planning to request funds from a bank or apply for grant funding. 

The decision to become self-employed is often a difficult one. However, with careful planning, you will give you the best chance of success in your new venture. 

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