Covid-19 is expected to decimate the UK jobs market, with unemployment doubling to 7.5 per cent by Christmas. That means a lot of people will find themselves redundant months before any vaccine comes to the rescue. Once the shock of redundancy has worn off – at the time, it can feel like being punched in the fact – then you could re-evaluate your life and career. Dare you go self-employed? Is it time to turn your side hustle into a full-time job?
According to Direct Line, one in five Britons have either started a new business since lockdown or plan to start one by the beginning of 2021. The most popular sectors include IT and web design (21 per cent), education/training (8 per cent) and consultancy (4 per cent).
Even more encouragingly, young people – those aged between 18 and 34 – are most excited about going into business for themselves, with 48 per cent either becoming or intending to be entrepreneurs.
Checklist for going self-employed
Okay, so if this is the moment when you become self-employed, where do you start and what do you need to know?
#1 – What’s your business idea?
Covid-19 has accelerated many trends that were probably going to happen anyway, whether it was increased working from home, shopping locally, customers consciously choosing independent retail over chains, etc. Of course, you don’t have to reinvent the wheel as a self-employed person. On the other hand, starting a self-employed business which chimes with the new normal could be helpful. You can find five low-cost ideas for starting your own business here.
#2 – How to market research your business idea
Forget the mantra “if you build it, they will come”; another truism is that time spent in preparation is seldom wasted. Market research is important for any new business, even if you are a self-employed gardener or a window cleaner. What’s your catchment area? What do people charge for this service? Who is the competition?
Recognising the importance of market research, even for the smallest businesses, the Market Research Society has a support page for small businesses.
#3 – What’s your unique selling proposition?
Even the smallest self-employed business should have a unique selling proposition (USP), something which differentiates itself from competitors. What is it that you’re offering that’s different?
Three questions to ask yourself are:
- Does your consumer want your product/service?
- Does your competitor do it better?
- Are your competitors doing it just as well as you are?
#4 – Decide on a business name
Now we’re getting to the fun part. Deciding on a memorable company name again sets you apart from competitors while summing up what it is you’re offering. However, it’s worth checking with Companies House that nobody else has nabbed the name first or that it’s already been trademarked. What you don’t want is a cease-and-desist letter from a solicitor.
#5 – How to draw up a business plan
Even the smallest self-employed business should draw up a business plan. Conducting a SWOT (strengths, weaknesses, opportunities, threats) test can be helpful. What equipment or services do you need to buy for your self-employed business? What are your revenue projections? If you’re applying for a business grant or a bank loan, you will need to provide a business plan.
#6 – Are you a sole trader or a limited company?
Being in business on your own, if you don’t set up a limited company at Companies House to run your business through, then by definition, you’re a sole trader.
When you’re a sole trader, you are self-employed, and legally, you and your business are one and the same.
But if you’re running your business through a limited company, the company is a separate legal entity from you. You will most likely be a director of the company (you run it) and also a shareholder in the company (which means you own all or part of it).
Advantages of a limited company
- Pay lower tax
- Limited liability
- More professional image
- Easier to raise finance
- You can sell equity
- Tax-free pension contributions
- Succession planning
Disadvantages of a limited company
- Potential tax costs
- More paperwork
- Lack of privacy
You can find out more about sole trader vs. limited company here.
#7 – Register your company
You don’t need to register a company name if you are a sole trader. However, you should register with HMRC to let them know they should expect an annual self-assessment tax return from you.
Registering a limited company name is straightforward and you can find a step-by-step guide here.
#8 – Open a business bank account
Unless you’re a sole trader, you must have a separate business bank account. Even then, keeping your personal cash separate from your business makes sense. You can find a guide to opening a business bank account here. And you can find the updated SmallBusiness guide to which banks offer what business accounts here.
#8 – Find a bookkeeper or an accountant
Choose the right accountant and it’s not just finding someone who can complete your tax returns, it could also mean you have a sounding board and counsel when it comes to business strategy. Talking to an accountant is a good idea even before you open your self-employed business. An accountant could help with all the steps we have seen so far, from drawing up a business plan, to helping you decide on the best structure for your business – whether to be a sole trader or a limited company, for example – and give you advice on opening a business bank account.
However, being self-employed, it may that just employing a freelance bookkeeper will do for now. A bookkeeper can look after your accounts, handle your receipts and transaction documents cheaper than an accountant would.
#9 – Design and build your website
You will need a website for your self-employed business, even if it’s just a virtual business card with your contact details. There are many off-the-shelf website builders you can use to do it yourself. For those of you selling products you can add e-commerce functionality through building your website in Shopify.
And then of course you can promote your self-employed business through social media, although astonishing 25 per cent of entrepreneurs have no social presence. You can read a social media business strategy for small business owners here.