This is the first of a four-part series on setting up and running your own business in the UK. It may provide an interesting insight for anyone thinking about doing this or it could act as checklist for anyone who has just started up. Everything I’ve written in this series is based from my own experience as a director, a company secretary and a financial officer in a small business, as well offering services to clients as an IT advisor on behalf of the business.

Fair trade for yourself!

As anyone who works in the IT industry will know, its a not-so-nice grey cloud zone trying to work out the best position to be in for employment purposes (especially in terms of the UK taxation system). Suffice to say, I’ve experienced being:

  • a freelancer
  • a self-employed contractor
  • an “employee” of Managed Services (a service run by IT Agencies)
  • an employee in the public sector
  • an employee in the private sector
  • a volunteer to charities / not-for-profit
  • a director of a Limited company

Whatever your thoughts on society today and the service industries, commoditisation, comsumerism, etc. these are challenging times to trade and barter your “offerings”, whatever they are (!), and get a fair price where you can.  All sounds rather medieval but I think trade concepts have not changed much since our days of the flint cutlery!

Wearing both hats: Director and Employee

I would say that one of the ideal positions to find yourself in, especially if you are multi-talented and can trade more than just one or two services in the UK, is to be your own boss – that is, to set up your own Limited company and become a director (and establish yourself as an employee of your own company).  You’ll wear two hats of course – one hat as the Director (and Company Secretary) who takes responsibility for the legitimate conduct of day-to-day business provision, including the book-keeping, and the other hat as the employee offering direct services to clients. Beyond this, you may want to take on another Director (and split the shares accordingly – 49/51, 30/70, etc. – depending on the arrangements) and also make them an employee if they have services to trade with clients, and you might also want to take someone on for a spot of book-keeping or administration (and perhaps even the Company Secretary role). Whatever you do though, start small and read your accounts carefully before any expansion!

Benefits: Control, Self-worth and Momemtum

So, what benefits are there to work for yourself? Well, the obvious benefits are “control” – control of what you trade, who you trade with, what you charge, what hours you work, etc. but with “control” comes “responsibility” and “accountability”.  In short, when things go wrong its you who takes the hit (as the Director) and if you’re investigated for anything like VAT returns, corporation tax, etc. then again its you under the spotlight! However, this is actually WHY its fun and challenging to be your own boss – you find you CAN do a lot more than you ever thought possible, and, you develop skills that as an non-executive employee you could never dream of learning. On top of that, the value of what you trade becomes all the more important – not just the rates you charge for services / products, but also your own worth and value as you become more experienced. There is more work satisfaction whilst working for a client and a feeling of being more “free” because the contract of work (Terms of Reference) has a finite schedule. This subtle pressure gives a feeling of momentum to everything you do and the decisions you make.

Benefits: Control of Profit and Loss

Besides the benefits above, watching the profit and loss figures in your accounting software brings a feeling of satisfaction – moreso when you have profit, of course, but even when you have a little loss one month (which I believe happens at least once to anyone in business!) you at least know how this happened (your book-keeping tells the story) and you have control on how to remedy it.  Compare this to being employee in uncertain times (like right now in 2010) – can you make any comment on how well the Board is really running their business, and therefore securing your position as an employee??  Probably not.

As for profit, you’ll see clearly in your accounting software how much you have available in the pot for dividends.  Depending on how many directors you have, what their share distribution is and the amount available in the pot, you can decide for yourself the value of a £1.00 share in your company (if you review the pot on a monthly basis for possible dividends, for example, then the £1.00 value will vary each month if your income is variable.) I am an overly cautious book-keeper, so besides leaving several thousand pounds in the pot for the rainy days and emergencies, I always try to forecast the coming months as best I can, in terms of overall financial position and contracted work, and make an evaluation of the share value based on this. The financial forecasting is something you learn quite quickly as you maintain regualar accounts and develop your business.

As for possible loss, well usually you can ascertain the quiet business periods or anticipate situations wich may impact your business.  If you manage your accounting quite tightly, you can forecast the impact and act accordingly. If you are ever worried about such matters, a quick consultation with your accountant can give peace of mind.

Benefits: Building your own future

If there is one challenge I’d add to the dull school curriculum it would be for each individual to set up their own business!  It doesn’t really matter what it is traded; it is more about the processes that underpin basic trade and then how you build on that to bring in expansion, creativity, innovation, quality, etc.  Of course the other lessons to learn could be the devaluation and destruction of a business.  I don’t think any individual can really know their own potential to build and destroy until they ‘give it a go’!

I would say that the success of what you trade now is obviously based on market demand, but more importantly, how well you build your profile (as an employee in your own business) and how well it reads to potential clients. You can be contracted to work on the rollout of a product in a your client’s organsiation, but quite quickly realise that the business case will not equate to end user expectation. How you ‘manage’ this kind of scenario is what diffentiates you between the employees of the organisation and other contractors on the project. This is what your future is made of – building blocks of actions and decisions – and your business shapes up a reputation based on these.  Even after just a few contracts at business start-up, clients and agencies will soon recognise your professional ‘trademark’.

If you have any questions about the article or the download please let me know.

The next article in this series may also interest you, Accounting: first of the ABCs to run a good business, which covers the accountancy roles and the tools needed to administer your business accounting.

Originally published: Monday, July 12th, 2010 at 21:53 in Industrialism, Money

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