Starting a business

Running your own business can be fulfilling and life enhancing. Instead of having someone telling you what to do, you’ll be the one making the calls – choosing how and when you work and who you do it for.

But this is also why it’s essential to take a step back before you start. Your work/life balance could change significantly, particularly if you work from home, as this can make it hard to ‘walk away’ in the evening. You could also find that there’s more stress, as you’re now responsible for everything.

Take the time to make plans that include your loved ones and friends. You want to be certain you can keep them in your life – and you could well find that their support will help you be more successful.

In time, you’ll hopefully be earning enough from your business to live on (or, ideally, a lot more than enough). However, unless you have a contract role lined up or have customers already waiting, it’s likely that the early days will be tougher. Having money put aside to tide you over could make all the difference.

If you’re currently employed and thinking about working for yourself, this is good reason not to jump ship straight away. Taking a bit of time to build up your savings could make a huge difference in a year or two – and if your new business doesn’t conflict with your current job, you could even test the water by starting it in your spare time.

Our simple budget planner can help give you an overview of your finances, and how much you can put away in savings for your new business.

If you already know all about the industry or sector you’re planning to operate in, you can probably skip this section and move on. For everyone else, it’s worth doing a bit of research. Here are a few of the questions you might like to answer.

Who are your potential customers? What are they looking for? How will they find you? What do your competitors offer and (if you can find out) what do they charge? What will you charge and how much profit will this give you after your costs are taken into account?

If you’re hoping to set up a small business that will, in time, become a big one, you need a business plan. Your bank may want to see it and potential investors certainly will – not to mention employees down the line. For those who want to be a one-man-band, it’s not as important, but having some ideas on paper can still help you stay on track.

The Government has some guidance to help you do this and there’s lots more information out there – provided by everyone from trade bodies to banks.

You can change your mind later, of course, but before you begin, you’ll need to decide how you want to operate. The most common options are to be a sole trader or a limited company. (There are also structures such as partnerships, but if these are right for you, it’s likely you already know.)

It’s a big decision, so it’s worth doing your own research, but here’s a quick overview to get you started. Sole traders have the advantage of less paperwork and a more straightforward tax return, but if your business loses money, you will have to pay the debts yourself. With limited companies, the debts belong to the company and aren’t passed to the directors (so your own savings are protected). In some situations, you may also pay less tax on the same amount of profit. However, there’s more paperwork and greater reporting requirements.

We’ve already mentioned paperwork once, but when it comes to setting up a business there’s a lot of it to do. For a start, limited companies have to register with Companies House. It doesn’t take long or cost very much, but it is essential. Both sole traders and limited companies also have to let HMRC know.

If you’re using a limited company, you’ll need a business bank account. Sole traders can use personal accounts if they are trading under their own names, but it may still be worth getting a business one.

You’ll have to check your current insurance, particularly if you’re working from home, and you may want to set up business insurance – or, in some cases, you’ll be required to.

There’s a lot more to consider – far more than we can cover here – but the Government has guidance to help. Here’s their support for limited companies. And this is their page for sole traders.

Finally, if you’re going to handle or store personal information, you need to know about GDPR and its requirements. These guides from the Information Commissioner’s Office may help you get started.

You have a workplace pension now, which means your employer makes contributions into your pension pot on your behalf.

Once you’ve got your business up and running, there’s one more important financial consideration to remember – your pension. It’s easy for the self-employed to skip this option, as there’s no pressure to do it and, in the immediate term, it’s one less outgoing. However, most people don’t set up a company with the intention of giving it up after a few years, so your personal financial planning needs to be as long term as your business planning.

When you put your savings into pensions, you cannot normally access our pension savings until age 55. This is due to rise to 57 from 2028. If you need a bit more flexibility, there are a number of different types of accounts you could use to save into, including savings, regular saver or cash ISA accounts. You should investigate which type of account would be best suited for your needs and circumstances.

Our financial wellness hub empowers you with simple steps you can take to improve your financial wellness so that you can relax and enjoy life now, while looking forward to a better tomorrow.

Whether you’re thinking about sending the kids to university, starting your own business or enjoying the retirement you deserve, we're here to help you tie it all together – before, during and after.

* Source as at 26 April 2021 : 27 UK Entrepreneur Statistics To Inspire You - TheCircularBoard