So you’re ready to start your small business. It’s a hugely liberating moment for anyone professional to start working for themselves and presents a chance to generate income and work hours or projects that suit you. Indeed, starting a sole trading business or a small enterprise has blossomed in popularity over the past few years. There are around 5.8 million small businesses in the UK as of 2020, and approximately 4.6 million are sole traders.
Easy to sign up, and answering to nobody but yourself and your clients – it’s no wonder it’s become such a popular way to make a living. However, it does come with some unique conditions which make successfully running your business a labour of love, as much as it finally frees you from the watchful eye of your manager or the world of office cubicles. Here are some of the best practices and essential tips to remember before you start out.
It’s incredibly easy to become a sole trader, certainly in comparison to being part of a limited company. Once you’ve registered for a self-assessment to pay your sole trader tax on profits you make, the rest is reasonably straightforward and can be mainly done online. If it’s your first time, HMRC will also provide you with the necessary identifying codes and logins. Although, be wary of the business industry you’re entering, as there can be some additional steps to take.
For example, any construction contracting or subcontracting means signing up to the Construction Industry Scheme, and you can be heavily fined if you register too late or forget to at all. A hefty fine from HMRC could easily take the wind out of your sails in the early years of operation, so be highly conscientious at this stage and make sure everything is above board before you start accepting jobs.
Understand your risks
Sole traders can often work as professionals who subcontract with larger firms, providing specialist help where necessary. As part of that, you need to be confident about your insurance situation. For example, if you’re doing work on someone else’s premises, or hazardous jobs, the personal risk to yourself is naturally going to be higher, and you aren’t immediately covered by your company’s policies. It’s good to have firms like personal injury solicitors on retainer, or at least be aware of your rights regarding access to assistance in the occurrence of something unfortunate. As we’ll go on to explore, being a sole trader requires a lot of independence on your part, from keeping detailed financial records, to ensure you’re covered legally if anything happens to you while you’re on a job.
Personal injury insurance, property laws (if someone injures themselves on your premises) and the many types of claims are all worth understanding in the context of your job. It’s typical rainy day planning, but you’ll be glad of it if anything were to go wrong.
This is a fundamental skill of the sole trader. It flows into everything you do in your role. From a sales and marketing perspective, it’s your job to market your brand and skills effectively, in the right places, and to the right audience. Having an online presence is essential these days, so be ready to invest in these sorts of new media – it’ll pay dividends in the future.
In addition, your financial records are yours to keep, quite literally. Solid bookkeeping, on everything from sales to expenses, and filing your taxes on the key sole-trader dates (31st January and 31st July) are typical practices that will become second nature to you as you go. If you look to employ additional people in the future, your priority has to be ensuring the PAYE payroll schemes are handled. You will also need to be aware of the contributions you’ll need to collect from your employees each month for National Insurance purposes.
In many ways, being a sole trader is about organisation as much as it is skill or passion for your profession. By ticking the boxes, doing the simple things diligently, and being aware that you are the last line of defence when things go wrong, the journey to running your own small business can be less about the headaches, and more about providing the value you know you can to your customers. In some ways, by doing these things well, a sole trader’s good practices become a self-fulfilling prophecy. A good reputation and thriving business attracts new customers and keeps you in good stead with existing ones – and, from there, well, you’re the boss.