Top 30 tips for becoming a sole trader
Setting up your own business pushes you to develop new skills and knowledge. Suddenly you find that you are not only an expert in your field, but have to develop a working knowledge of invoicing, book keeping and the intricacies of income tax law. Below I have listed some of the important things you’ll need to know, and do, as you take the big step into becoming a sole trader.
Is there traction for your business?
- Do your research to make sure there is a need for your business. Maybe look into doing a survey on social media or with people you know. Also look at businesses that are similar to yours to see if they are successful and if you have a unique selling point.
- Make sure you have the skills you need for the service or product you are trying to sell. Even if this means skilling up. Attend courses, training and conferences to make sure you are equipped with the skills you need.
- When working out your prices of services or products make sure you include time, equipment and materials as theses are all things you need to consider when pricing.
- You will need to notify Her Majesty’s Revenue & Customs (HMRC) that you have set up your own business, so that your tax records remain up to date. Even if in your first year of trading you don’t make a profit, you will still need to declare all of your income and expenses on a tax return, and be able to provide evidence of these.
- It is important to keep detailed records of all financial transactions (expenditure and income) from the very inception of your business. Get familiar with spreadsheets or other bookkeeping software. The HMRC demands that you keep the financial records of your business for six years after the tax year they relate to, and can ask to see these at any time if they have a query about your payments.
- Look into getting an accountant as it can provide you with reassurance to know your tax return has been submitted on time. They often produce tax savings that more than cover the cost of their services, and their services qualify for tax relief when provided to the self-employed.
- It is important to be informed of what you can and cannot claim tax relief for, so put some research into what you can and can’t claim for. Many people don’t realise, for example, that if they work from home they can claim for the use of the home, and itemise some of its running costs for tax relief.
- Record every mile you travel for work purposes. For the first 10,000 miles you can claim up to 45p per mile, anything after 10,000 you can claim 25p per mile. Believe me this expense may only seem small but it soon adds up.
Making the cut
- Make sure you’re aware of the deadlines for submitting tax returns, so that you avoid unnecessary fines. These are uniformly October 31st for a paper return, and January 31st for an electronic one. Fines can be as high as £1600, often outweighing any tax due. Keep yourself informed about any changes to HMRC regulations to avoid any nasty surprises.
All things business
- You will need to sort out insurance for your business, which may involve changing the insurance on your home and your car if you are using these as a part of your business.
- Get a business bank account. If you have registered your business as a company you can set this up in the name of the business. If not then you can get yourself a new bank account in your own name.
- Depending on your business you may want to register with the Information Commissioners Office for data protection.
- Work out whether you need to be registered for VAT – If your annual turnover is over £85,000. You may not turnover this amount of income straight away but when you do you will need to be registered so bear it in mind for the future.
Planning for success
- Make sure when you first start your business that you give yourself time to look up from the grindstone, and make early assessments of your progress and evaluations of what needs to be improved or changed to enable you to move forwards.
- You should have a clear business plan in place from day one, but this should have an inbuilt flexibility. You shouldn’t be afraid to make subtle changes to accommodate a changing business environment. From the outset, be aware and be responsive.
- Look at financial support and funding for example New Enterprise Allowance and Working Tax Credits.
- When starting out as a sole trader you are often working alone and if not alone with a small number of people. It can be very difficult to keep yourself accountable to the deadlines, goals and aspirations. Keep motivated in challenging times whilst not always being able to share your ideas with an enthusiastic professional. A business mentor can be invaluable in your business’ infancy and on-going development of your business. If you decide you wish to find a mentor be sure to do your research, make sure they are registered with either of the relevant bodies for example European Mentoring Coaching Council and Association for Coaching.
Money in the bank
- From your very first month of operation, you should be putting a part of any profits you are making to one side, to cover your tax and national insurance liabilities. It is very easy to put these to the back of your mind when you are busy doing a hundred other things, but you can be sure that the tax man won’t be putting it to the back of his mind.
- As you are a sole trader you don’t automatically save towards your pension. You may want to look at a personal pension. There are 3 types: ordinary personal, stakeholder and self-invested personal pensions. There is also a scheme set up by the government called NEST. Before signing up to any pension scheme make sure you do your research and read their terms and conditions.
- Also put aside a small amount of your incomings to cover things like sick pay, holidays and dry spells. Unlike employment, if you don’t work you don’t get paid.
Your mind = Your business
- Set up your own office, even if it means using part of the dinning room table. If you feel like you are in an office you are more likely to put the work and effort in.
- Get yourself dressed and start work on time as if you were going to an office away from home.
- Don’t be available 24/7. Limit your working hours. When you leave the office leave work there.
- Surround yourself with like-minded, positive and motivated people. When you are lacking positivity or motivation it can really be a benefit to have these qualities around you to focus your mind.
- However tough setting up your own business can be, take time to relax and enjoy yourself. You are your business’s primary asset, and you need to take time to recharge and refocus so that you can get the best out of yourself.
Be social…as in social media
- Join LinkedIn. You can find potential clients depending on the type of business you have.
- Join networking groups and events to overcome loneliness as well as promoting your business.
- If you are going to advertise your services on Social Media pick no more than 3 platforms and do these 3 platforms well as opposed to spreading yourself thin across too many platforms.
Warmth is where the money is
- Design your own newsletter to engage potential clients. This will also help you to build your own database.
- When engaging with customers or potential customers ensure you are always warm. Sometimes it is so easy to be very to the point and not take an interest in those you engage with. This can be very off putting. Having this warmth will allow for you to make better rapport and keep your customers happy.
Final tip….When engaging with customers or colleagues be sure to remember to always exercise patience. Sometimes those around you test you but remember it’s you that is representing your company, so regardless of your opinions remember cooler heads prevail, as does your brand.
If there are any tips that you feel we have missed please be sure to tell us, likewise, if you felt this was useful let us know.
For more interesting tips, news, resources and updates please interact with us by being a part of our social media community.