There are some things to consider when deciding which business structure to use. Here are some things which will be affected by your choice:
This can be a lot to think about and probably doesn’t make it any easier to work out which business model is right for you.
So here are some alternative things to consider when deciding which business structure to use:
Here are some common business structures to consider and some information about each:
SOLE TRADER / SELF-EMPLOYED
This is the simplest business structure.
It is worth noting that as a Sole Trader, if your business runs up debts, you are personally responsible for this and will be held accountable. This could put your home or other personal assets at risk, which is why we are showing you how to get started without accruing debts or borrowing money. If you aren’t going to borrow any money then this will not affect you at all.
DON’T BORROW MONEY! Make money through sales.
By far the easiest business structure to begin with is to be a Sole Trader. With less paperwork and administration involved than every other structure, the only negative of setting up like this is the fact that you are personally responsible for any debts in your business.
To set up as a Limited Company, you have to register with Companies House.
There are reasons for setting up in this way and it will be a decision that you will have to take as a business owner, but as you can see – the more complicated that the structure of your business becomes, the more paperwork and administration will be involved.
We frown upon anything that takes your energy and focus away from the core thrust of your business, which at all times should be promoting what you do and selling your value.
Simon is like less time on paperwork and more time doing fun stuff (like selling or doing what you love to do).
To set up a business partnership, you must choose a name for the business. You can use your own name or trade under a business name.
The power of any business partnership is in finding the right people to collaborate with.
COMMUNITY INTEREST COMPANY
Put simply, a Community Interest Company is similar to a Limited Company, but trading with a social purpose or community benefit, rather than private profits.
A Social Enterprise is a business that trades with a social or environmental purpose at its core.
red herring alert - social enterprise is not a legal structure, it's a kind of business model. you can operate as a social enterprise whilst being a sole trader of having a limited company.
A charity is a slightly different type of business entity, in that it enjoys some perks that other businesses don’t:
There are six steps to setting up as a Charity:
How do you decide which Business Model suits your Start-up?
The main thing to work out is how much you like filling out forms and completing paperwork. Even if this isn’t something that bothers you in the slightest, we hope by now that you would prefer to do as little of this as possible, as it takes away from your main focus of ‘making money doing what you love’.
Needless to say that the more basic the business structure, the less paperwork and form-filling will be involved.
As always, here at the Pop Up Business School, when getting started, and wanting to get up and running as quickly as possible, we advise keeping it simple.
How do you keep it simple?
MANAGING YOUR ACCOUNTS
The accounts are something that every company, no matter how big or small, have to keep. This helps with filling in tax returns and understanding the financial aspects of your business such as cashflow, profit and loss, and expenses.
To put it in its simplest terms, a business should keep records of all money that is spent, and all money that is earnt. The difference between these two figures is your profit (or your loss). The trick is to make sure at all times that the money earnt figure remains higher than the money spent figure.
That is why here at Pop Up we recommend starting your business without incurring any debts and making money as soon as you can.
One major benefit of doing this is so that, if accounts and paperwork isn’t your thing, you can afford to pay someone else to do it.
Entrepreneurship isn’t about doing everything by yourself, it is about finding people who are good at something and who you can work well with and working together.
You should focus on making money as soon as possible so that you can tackle all the other problems you will have, in style.
TAX AND VAT
Tax and VAT are two things that will become necessary to know when you start your own business. When you are an employee, whoever you work for kindly removes your tax before you receive your wages, but this isn’t the case when you run your own business. VAT isn’t even a concern.
The best thing to do when you start earning money for yourself is to allow for tax in all that you earn. So for every £10 that you make, you should consider that you have made £7 and put the other £3 away to cover your tax and national insurance contributions. If you get into the habit of doing this then you won’t receive any nasty surprises when the taxman comes calling.
As a sole trader you have three months from the date that you start trading to inform HMRC that you are in business.
What happens if you don’t inform HMRC?
The simple answer is that at some point they will find out. Either the job centre will advise them when you stop claiming benefits, or your past employer will inform them that you have left the company. It is better to call and let them know that you have started a business, when the time comes. The optimum time to do this is when your business starts to generate revenue.
As a sole trader you will still pay tax as if you were employed and as such, are entitled to the same personal allowance. As of 2017 this was £11,500 (this may now be a different figure – you can check what the current allowance is here.
It may be that you run an online business and trade with people who are not based in the UK. Therefore, you may be confused as to how HMRC would be aware that you were in business and generating income.
The best advice I have been given when asking the question on whether a location-independent online business trading with non-UK customers can avoid paying tax was simply a question asked to me in return:
“Do you like sleeping at night?”
You see, there is no point in trying to avoid paying tax, and here at Pop Up Business School we don’t recommend it. We think you should set everything up simply and properly from the start so that you can live a stress free life. You don’t want to embrace a new life of freedom, passion, positivity, motivation and progress only to spend your time constantly worrying about HMRC (or anything else for that matter).
Everything we advise is designed to make the process of getting started as easy as possible, so when that first invoice comes in, let HMRC know that you are trading. Then, if you pay someone to look after your tax returns, you may never have to speak to them again.
We always say, let the other guy be the one who is stressed and keep yourself right at all times. Especially those few times in the year when you have to communicate with ‘the system.’
Paying tax is a good thing. Why? Because it mean you've made a profit :).
An idea that you make no progress on will never be anything more than an idea.
An idea that you make progress on will turn into a business.
NOTE: This statistics and facts in this article are correct at the date of publish [22/09/2017]