Starting and running your own business can be the most exciting and rewarding thing that you ever embark on; however you could have the most amazing idea in the world, but that does not mean that it is going to work as a business.

With 20/21 drawing to a close, unemployment being at 5%, and with more and more people than ever thinking of starting their own business, we decided to write this guide to hopefully answer a few of the questions that might be floating around your mind about your new venture.

None of the topics covered go into minute detail, but the intention of the article is to use this as a starting block to start sharing the Shoebox knowledge base. In the weeks/months to come we will dive into each area discussed in a little more depth, but for now, this is just a starting point.

So… where to begin?

Can you afford to run your business full time, if not, could you run it part time until it has grown?

Although I hope that you do, it is unlikely that you are going to make a shed load of money on day one. Building a business takes a lot of time and money, so now, more than ever, you need to sit down and work out what is known as your MVI (Minimum Viable Income).

What is MVI?

MVI is essentially how much money you need to earn to live. To calculate this, you need to look at your living costs (fixed and variable) as well as money that you need to socialise and buy clothes etc. Basically, your personal budget. That one is hopefully self-explanatory, but when running a business, you have to think about these costs twice; for both you and your business.

In its simplest form, the MVI calculation will look something like this:

MVI = Living Expenses + Fixed Business Expenses + Variable Business Expenses + Business taxes + Personal taxes

Once you have worked out your MVI you should have a better understanding of how many clients/customers that you will need to make your business work, what to charge for your services etc. Without this it is essentially a shot in the dark and you could be pricing yourself to fail from the get go.

Now that bit is covered, lets look at actually getting you set up.

How do I actually go about setting up my business?

So, this is the first technical bit of the guide so listen up, it is super important.
The first thing that you need to know is what business structure do you use? Business structure of course referring to sole trader, limited company etc. There are other business structures available, however these two are the most common for a start-up business. What set up is best for you will depending on your business idea and your personal situation.

Sole Trader

When setting up as a Sole Trader, you are the legal entity for the business. All profits are subject to income tax and NI and you are solely responsible for all tax liabilities and legal issues. Sole Trader businesses do not benefit from ‘Limited Liability’ which means if something goes wrong with the business, then it is you who is personally liable.

Typically, we would advise setting up as a sole trader for smaller businesses such a freelance worker, or a part time business. As a rule of thumb, if you are tuning over less than £50,000 per year then sole trader might be the one for you as there is less of an administrative burden when it comes to filing your statutory responsibilities.

Limited company

A Limited company is classed as a separate legal entity from you as an individual; this is known a limited liability. In a nutshell, you have an extra degree of protection than that of a sole trader. If the business where to become insolvent, then it means that you will not be personally liable for its debts, unless you have personally guaranteed them.

Operating a limited company is much more of an administrational responsibility and there are more statutory fillings to be made. Generally, this is a more expensive option for things like accountancy fees, however these additional costs are mostly outweighed by the fact that you can be much more tax efficient.

The biggest difference with a limited company than that of a sole trader is the way that your taxes are dealt with. As a sole trader, all of the profit you make is subject to both income tax and National Insurance. This is not too much of an issue as a basic rate taxpayer, but when you move into the higher tax brackets you will start to feel the pinch. A limited company profits on the other hand are taxed at a flat rate of 19% at the time of writing this. Yes, you do of course have to pay income tax on the money that you draw personally, however you do not have to draw all of the money so you may find this to be a much more lucrative option. More information on working through a limited company can be found here.

Setting up a bank account

As early as 3 years ago a bank account would have taken you about a month to set up, ‘speaking from experience’ so the so called ‘Challenger Banks’ have been an absolute god send when it comes to setting up a new business. It means that you can be up and running in a matter of hours as opposed to a couple of months.

A few of banks to look at;

Mettle (By Natwest)

Starling

Monzo

Each of these banks have different benefits to them so look at each carefully and make your decision. A few things to look out for…

  • Is there an ongoing fee?
  • Do they charge for transactions?
  • Are there any additional benefits to open the account with a specific provider?

If you set up with one of these banks to start with it does not mean you cannot change it further down the line but it is always worth getting the best bang for your buck.

Sourcing finance

As discussed earlier when looking into business structure, limited companies have limited liability which carries with it a certain amount of protection, but if you apply for a loan, you will likely have to give a personal guarantee regardless of the structure you decide on.

When looking into finance providers you need to do your research. As a start-up, there are certain providers that specialise in this, some of whom are government backed. If you can opt for the government backed option then you definitely should. The difference with a loan that is government backed is that this basically acts as your personal guarantee, so if the business folds, it is the government who will foot the bill.

Here are a couple of start up loan providers to consider;

The Start Up Loan Company

SME Loans 

Do I need insurance?

Whether you are legally required to have business insurance really depends on the type of business that you have/are looking to set up. If you have employees for example, then yes you will be legally required to have at least Employers Liability Insurance. You may also be legally required to have a particular type of insurance if you have a regulatory body. An example of a regulatory body being the ACA or the ACCA who would be the regulatory body for accountants. Whether you legally must have insurance or not, it is always advisable to have it, just in case.

The three main types of insurances to look out for;

  • Public Liability
  • Employers Liability and
  • Professional Indemnity

More detail will be provided in future articles about the different types of insurances and what they do, but these ones will be the main three to look out for to begin with.

Do your research.

You have heard it a million and one times before, but with recent events this could not be any more important. Research, if you spend £27,000 on a Business Studies degree or do a quick Google search, is generally split between two main categories: Macro and Micro. Macro being the overarching economic situation, whereas Micro refers to factors that are more directly associated with your business idea… your suppliers, your customers etc. Whilst both equally important, your Micro research can be quite difficult to do effectively without knowing a few tricks of the trade.

Macro

Macro research looks at the wider economy. Knowing your business inside and out is essential, but what do you do when you are thrown a curve ball? 2020/2021 has probably been the best working example of Macro research that you could hope for.

So far, we have had.

–              Brexit
–              Covid-19
–              Upheaval of legislations; IR35

Granted it is impossible to predict everything that may happen to your business, however having a contingency plan to help with such eventualities could be the key to your businesses survival.

Micro

Micro research aims to look at the economic factors that are more intricately linked to your business. This could include what your customers want, what your competitors are doing or even how your prospective clients see your business.

A couple of things to consider when conducting your Micro research;

  • What are your competitors offering/charging
  • Read competitors reviews to get an understanding of what your clients want
  • Use the resources at your disposal; Google Trends as an example to research whether people are searching for your product or services

Both your Macro and Micro research should help determine the best ways to run your business and more importantly will start to help you truly understand your customers.

The first ‘BIG’ stage of growth… taking on your first employee.

When do I know I need someone?

The rule of thumb here is either when you have no time left to service your clients/customers, or simply when you can afford to. Staff are probably the biggest cost that you will have to cover, however without staff, you will not grow.

A few things to consider before hiring your first member staff;

Employers NI

As an employer you will have to make National Insurance payments for each member of staff in your employ. The amount that you pay is fixed at 13.8% on every pound over £8,840 (Tax year 21/22)

Pension payments

By law all employers must offer a workplace pension scheme known as ‘Automatic Enrolment’. As of writing this the amount that you will need to pay as an employer is 3% on salaries over £6,240.

Be mindful of your mental health; Being every department is not easy.

Again, I am speaking from experience here. Since I embarked on my business journey, I have been plagued by the anxieties that growing and running a successful business brings. After all, it can be very stressful, so this is to be expected. You are no longer only responsible for your rent/mortgage, but now you are responsible for all of your employees as well… its not easy so it is always best to go in prepared.

It can also be lonely, very lonely. As your business grows, you will inevitably end up working more and more hours and the loneliness will creep up on you. Remember to take regular breaks and make a conscious effort to speak or spend time with your friends and family.

Finally, look back and reflect on your day… you have probably had more little wins than you thought.

It is so easy to forget your successes of the day… look back on your interactions and learn from them. A mistake is only ever an issue if it is made more than once.

When I first started in business I used to hold on to the negative points, what did I do wrong? How did I let it happen? It took me a good while to realise how much of a toxic way of thinking this was. Instead of focusing on the negatives, look at what you achieved, no matter how little it may be. Did you took something off your ‘To do’ list that you had been putting off? Did you learn something new? What challenges did you overcome?

Talking about your business/working life is nothing new, but do not make this an everyday occurrence. Its easy to become obsessed with your business, and that is not necessarily a bad thing, but don’t forget to have a personal life too. At some point it will become too much… even Elon Musk and Jeff Bezos need time to recharge and you will as well.