Steps & tips for your own freelance business.
Most of us think it can be rather daunting to “go alone” as a freelancer, especially if we’ve had the comfort blanket of a corporation looking after all matters related to employment. But there is light at the end of the tunnel.
Albert had a chat with Pieter van Rooyen, Senior Partner and Paul Attridge, Tax Manager from Acuity Finances, an accounting and financial services company. We talked about the four steps to setting up your own business and advice on how to manage your finances in order to succeed.
REGISTER YOUR COMPANY OR AS SOLE-TRADER.
Once you’re clear about your business idea or the service you are offering, including how you’ll price your services, your first port of call is to register your company as early as possible. “Only once you’ve registered at Companies House (1, can you open a business bank account. And then you can start billing immediately. So make sure you get this done as fast as possible. You can do this yourself or use a financial service company to do this for you”, explains Paul.
REGISTER FOR VAT IF APPLICABLE.
The next thing to do is register for VAT (2 immediately. The threshold for VAT is £81.000 annually, and you can also opt to register later once you go over the threshold. Getting registered for VAT early is beneficial so you avoid any late registration penalties and the need for early monitoring of your turnover. To maintain a steady cash flow, you can also join the VAT flat rate scheme (3 at any time. Moreover, the flat rate scheme reduces your admin work and makes good sense especially if your expenses are relatively low.
REGISTER FOR CORPORATION TAX IF YOU REGISTERED AS A LIMITED COMPANY.
“You should also make sure to register for corporation tax (4 within three months of setting up your business. Once you’ve registered your company HMRC sends you a Unique Taxpayer Reference which you’ll need to set up your account for paying corporation tax ”, explains Pieter and continues, “Just get all this registration stuff done, so you can start thinking about running your business. ”
PREPARE A 90-DAY PLAN.
After you’ve take all these steps to “comply”, meaning you are now a legally registered freelancer, contractor or independent business, you need to think about a “90-day-plan”. Pieter sheds light on the plan, “Besides things like marketing your services or product, you need to estimate what is your expected income, your estimate on running costs and about cash flow, a really important measure of profitability… Always plan a 90-day-window ahead, even if it is just a simple plan.” Have your finger on the pulse from day one, and avoid nasty surprises, for example, in case you’re your costs start eating into your profit.
INVOICE QUICKLY & EFFICIENTLY.
“Make sure you get into the practice of invoicing your clients quickly, and collect at a good pace… this will all show in your cash flow which is the lifeline to your business”, says Pieter.
DO YOUR EXPENSES REGULARLY.
Expenses are another part of running your business that can become a bit of a burden. “Please don’t wait until the end of the year and come to your accountant with a Sainsbury bag full of receipts”, sighs Paul with a smile, “Just get into the habit of keeping a record of all your receipts, bank statements, and remember always to use company funds rather than your own money to pay for expenses. It will then all nicely match up in the accounts.” Everything that can be related to your business as a whole or partly is broadly speaking accepted as company expenses (5, but its always good to check with your accountant what is an acceptable portion of expenses (if e.g. you are claiming part of your housing costs as office expenses).
THINK ABOUT THE LEVEL OF COVER YOU NEED.
Another area we tend to forget are the employment benefits that are lost when setting up on your own. Things like income protection, private medical insurance and pensions are the comfort blankets that often come with working for corporates. “We advise you to take sufficient insurance cover for unexpected quirks and happenings that life might through at you. This is of course depends on your personal circumstances. Professional indemnity cover is vital for certain self-employed professions like builders, plumbers, architects, hairdressers… so all those consumer facing businesses”, explains Pieter and continues, “If you run a tight ship, and taking time out of your business is not an option, then you might also like to consider things like “jury service insurance” in case you are called.”
THINK ABOUT YOUR MORTGAGE.
Getting or renewing a mortgage can become more difficult if you are self-employed. Discussions with brokers can be detailed and self-employed will need to show two last years’ of trading accounts to qualify for a mortgage. “If you are planning to make the move from a corporate employee to freelance or contract, and your mortgage is up for renewal, then our advice is to renegotiate this before setting up on your own”, clarifies Paul.
GET TO THE HABIT OF FINANCIAL DISCIPLINE.
Once you’ve got the registrations out of the way, done your 90-day plan and made sure you have the right cover, you are set. When you move from going to an office every day to working from e.g. your home, you need a good disciplined working environment. “You’ll also need financial discipline, to set aside some of your company income for VAT payments, taxes and working capital to keep your business going. A good rule of thumb is to assume that two thirds of your VAT-inclusive-income is available for you, and one third needs to be set aside”, says Paul.
FIND AN ACCOUNTANT THAT IS RIGHT FOR YOUR BUSINESS.
Going on your own can be a bit scary, but if you get the right accountant and “virtual team” then you’re not alone. Find an accountant through personal referral and make sure they can cater for your particular business. “Best value does not always mean the cheapest, but rather best for your specific business. Face the challenge of setting up head on, get a good team around you and adopt quickly if your circumstance change. If you do this from the very beginning, then you’ll achieve”, explain Pieter and Paul.