Setting up your own business
1. Decide what you want to do, and plan to do it well. If it is something that you love doing, then that’s perfect
2. Start small, start cheap. Do you need tools or equipment? Try to beg or borrow from relatives, or buy second-hand. Remember that in business, if you don’t owe anyone any money, you cannot become bankrupt! If you fail and just cease to trade without owing any money, you will be respected for it, and may have learnt valuable lessons.
3. Whatever it is, start doing it now! And do it for friends, for relatives, if necessary working for nothing. But don’t be embarrassed to ask for your expenses, they will expect at least that. If you do a good job, you’ll be asked to come back again, and the next time you might be able to ask for proper wages.
4. How much to charge? Think of the national minimum wage as a starting point – but many self-employed people get paid even less when they start out! Sometimes it is a good idea to ask the customer what they are willing (and able) to pay; the answer might be more than you expect.
5. Invoicing: Every time you are paid, write out an invoice which will contain a serial number, date, your name and address and telephone number, the customer’s name, the nature of the job, the amount paid, and “Received with Thanks”. Keep a copy for your records.
6. Your Accounts: Start a sheet of squared paper or a computer spreadsheet with the heading BUSINESS INCOME. Head the columns: serial number; date; customer’s name and contact details; nature of job; amount paid. Also start a separate sheet or spreadsheet, headed BUSINESS EXPENSES with headings: serial number; date; supplier’s name; item; cost. Keep all receipts, and on each one write the serial number and the tax year (e.g. 09/10).
7. Your Profit: At the end of the week, subtract the total expenses from the total income. The result is the profit of the business, your wages for the work you have done. Have you made a profit? Great! Is the profit less than £15 (or whatever your benefits allow you to earn in a week)? No problem, but you are not in business yet. Keep going!
8. In Business! Now imagine that at last, you have made a good profit for the week. Great! You are now truly in business! To prove it, you must carry out the following steps:
(i) Contact the benefits office to stop your benefits. The reason is that you cannot be self-employed and unemployed at the same time.
(ii) Choose a unique business name, preferably one that includes your own name and describes the business. e.g. “Jill Smith’s Dog Walking Service.” Don’t include “Co” or “Ltd” – that comes much later. If you want to change the business name later, it is much easier if you haven’t spent money on having cards printed specially.
(iii) Then look up the address of your local tax office, and write them a letter which simply says “With effect from [date] I am self-employed and trading as [name] as a [type of business].” Include your full name, national insurance number, and date of birth. They will send you a tax reference number. Keep it safe.
(iv) If you have another job, remember that you can quite legally be self-employed in one or more businesses and employed at the same time. All the taxman needs to know is your total earnings. Your employer may not be so happy though, especially if they think you are trying to compete with them!
(v) The first time 5th April comes round, that is the end of your first trading year. In the accounts sheets add up the income and the expenses, and calculate the profit or loss for the tax year. Made a profit? Fantastic!
(vi) Fill in the tax returns, either on paper or on http://www.hmrc.gov.uk, before 25th September. Make sure you have put aside enough money to pay the tax right away, otherwise you will be hit with a £100 fine and charged interest. But unless your earnings are over about £6000, you will not be due to pay any tax at all!
(vii) On 6th April, start new accounting sheets for the new tax year, and off you go again. Good luck!
Some Basic Rules of Business
(1) Remember the saying “You are not in business unless you know what business you are in.” Stick to the business you know, and don’t be tempted to take on work you know to be beyond you. Remember no-one minds if you refuse a job. But if work is done badly your reputation will suffer.
(2) Don’t be tempted to take on too much – “I’m too busy” is something everyone understands – and respects.
(3) Treat your customers as you would wish them to treat you.
(4) The same goes for your suppliers. Never try to get cheap credit by paying suppliers late – only big companies can get away with that!
(5) Treat all other small businesses as allies, not as competitors. If you can’t do a job, recommend someone else, and tell them what you’ve done – they’ll remember you, and might return the favour one day.
(6) Never agree to a deal where someone else will be hurt. Trust is an element of every business; make sure you are worthy of that trust. If you are straight with people, people will be straight with you.