What to think about when starting a business or becoming self employed
Working for yourself can be rewarding.
Do something that your passionate about.
You can choose your own hours.
Work around home commitments e.g. childcare.
Have control over your income
Working long hours and weekends.
Dealing with irregular income.
Having to do your own book keeping and tax return.
Limited or no access to employment benefits e.g. maternity pay.
Different types of self-employed businesses
This is the simplest business structure, where you will run your own business as an individual and keep any after-tax profits.
However, your personal and business assets are not considered separate. This means you’re personally responsible for debts associated with the business. You can reduce this problem through insurance, or by choosing one of the other business structures mentioned below. But, don’t be put off by the idea of being a business. A sole trader is just that – one person, you, working for themselves. You don’t need to be a shop owner. You could be a taxi driver or hairdresser. Becoming a business is just the official term.
To become a sole trader, all you need to do is register as self-employed with HM Revenue & Customs (HMRC).
This is what I chose to do when I set up being self employed, its not as scary as it seems! I registered with the HMRC, and got myself an accountant. I am the first to admit I am not the greatest with numbers and all the business lingo, having my accountant has relieved the stress from me and I know all my information is up to date and correct ready for the end of each tax year.
A partnership, as the names suggests, is when you go into business with one or more other people and have shared responsibility for the business. It’s important you draw up a partnership agreement, so everyone involved knows how the profits are split up.
Business debts are dealt with under what is known as Joint and Several Liability. This means all members of the partnership are responsible for the debts either in full, or individually, depending on how much they can afford to repay.
All partners will need to submit a Self Assessment tax return for their own share of the profits, and a nominated partner will have to submit a partnership Self Assessment for the business.
Private Limited Company (Ltd)
A private limited company (Ltd), is its own legal entity and is completely separate from the people owning and running it. It will need to be registered (or incorporated) with Companies’ House, must have a suitable name and an address.
The company will have a director (usually the person who started the business) who is legally responsible for running the company, and at least one shareholder (also known as a member).
A Ltd will have to pay corporation tax on any profits, and the after-tax profits are divided up among the shareholders.
The company will need to submit its annual accounts to Companies’ House and a tax return to HMRC. The director will also need to fill in a Self Assessment tax return, but will only pay tax on the money they earned by running the business, not the profits.
Thinking of buying a franchise?
If you’re interested in becoming self-employed or starting your own business, but don’t want to start from scratch, a franchise might be worth considering. A franchise is where you buy a licence from a business owner to use an existing business idea and brand name. Some well-known franchises include American fast food chains McDonalds, Burger King and KFC, but there are thousands of other franchise opportunities available from global names to local organisations. The start-up costs can be quite high, but you will be buying into an established brand and the deal should include training and guidance on setting-up, running and growing your franchise.
But be aware of scams. Check that the brand is established and that the franchiser is marketing the brand actively
When I first set up, Lash Perfect a well known lash brand were beginning to offer franchise options. I love the brand and use their products in my lash services, and their salon theme is gorgeous. But I had my own vision in what I wanted the salon to be, and I also didn't want to be restricted, I knew I wanted to offer a wide range of treatments. The last point for me was I didn't have the funds to even consider this. When I set up my business I lent money from my family as I personally didn't want to go down the bank route, my plan was to start small and gradually grow.
What you need to do when starting a business or becoming self-employed
Drawing up a budget
First, and possibly most importantly, you need to draw up a budget. You need to think about all the costs it’s going to take to get your business off the ground and operational. These costs might include:
renting a business premises, shop front or renting a space within an established business
bills, electricity, gas and water are the basics.
cost of travelling to and from that work place, whether you need to pay for parking whilst at work (this can add up)
equipment including tools, computers, beauty equipment.
setting up and hosting a website
advertising and marketing materials
business supplies to get you started if you are offering services.
forgotten things like, music licence, insurance, waste disposal, sanitary disposal, cleaning services, business rates, card machine rates, health and safety costs e.g. first aid kit, fire extinguisher's
Don't panic because not all of these might relate to what you need to consider, you might not need all of these. Many profitable businesses have no need for a physical premises, you might choose to be a mobile therapist. You might already have a lot of the equipment you need and staff might not be necessary until the business is more established. I was lucky to have quite a lot of my equipment before I set up, I also decided for it to just be myself and have no staff to start off and look to gradually grow.
However, you will also need to think about your personal costs such as rent, mortgage, utility bills, childcare and food.
You will then need to think about how much of your own money you can afford to invest to find out if you will need to look for investment or a business loan. Once I worked the amount out I needed to be able to pay per month for my house, bills and lifestyle, I then broke it down to per working day so I knew I had a target per day to reach to be able to get by each month.
There are two main reasons for writing a business plan:
For business reasons so you can set out your objectives, develop ideas and plan for the short and medium term.
To present to people outside your business, usually to banks or potential investors if you’re looking to raise money.
Regardless of who you’re presenting it to, it’s important to be realistic and honest about your costs and earning potential.
If it will be seen by people outside your business, make sure it looks professional, is well structured and contains all the information people would expect to see. I do believe a business plan is important, truthfully when I set up I never wrote down a plan it was just in my head. I don't advise this at all its so easy to forget things, and get lead away from the main plan. When I expanded my salon into my new premises, I was organised and I had a plan, it ran smoothly and accordingly. Below is a draft plan to help you get started with your business.
Business Description: Your business name and address, as well as a brief history (how the business idea started, how it has evolved, and any achievements to date).
Business Forecast: The measurable goals and objectives of your business, with a timeline for achieving them.
Business Structure: How the business is owned and managed (i.e. whether it is a sole proprietorship, partnership, limited liability partnership (LLP), or limited company), and how decisions are made.
Product/Service Details: The primary product or service your business will provide, in addition to potential future products or services.
Marketing Plan: Your business's target market, competitors, pricing strategy, and advertising strategy.
SWOT Analysis: A detailed description of your business's strengths, weaknesses, opportunities, and threats to help predict your viability and focus your business strategy.
Operational Details: A description of the business's day-to-day operations, facility, outside suppliers, and staffing requirements.
Financial Information: Your business's target market, competitors, pricing strategy, and advertising strategy.
If you’re thinking of setting up your own business, you will also need to register for Self Assessment to pay your own taxes.
You pay tax and National Insurance on your self-employed earnings in arrears. This means any tax you owe on money earned in the 2020/21 tax year is not due until January 2022.
This means you will need to plan how you will pay what could be a substantial bill. The good news is you will have a good idea about how much tax you owe at the end of the previous tax year, which gives you nine months to prepare.
Now here's where you can learn from me, I used to put of doing my accounts, not sure why as all I needed to do was note what income I had taken each week, my bank statements and receipts for all business purchases. The rest my accountant would sort out, but I used to leave it until last minute. I would make life harder for myself by having hardly anytime to complete 12 months worth of work which took hours when if I had made a note at the end of each week it would of made my life so much easier. I have learnt from that and now I am on the ball and at the end of each week I sort my accounts out, I'm now one of the first clients for my accountant to put in my books each year. This tax year I downloaded QuickBooks, I've been recommended it a few times by the girls that work in the salon, as I'm old fashioned and love to hand write my accounts. I need to keep with the times, so I'm keeping up to date with my books on there, if I have a paper receipt a quick snap of it and its saved on my QuickBooks account. I've got quite a while yet to let you know if I think its worth it a I am going to be doing the full tax year. So watch this space!
Registering for VAT
If your business has a taxable turnover of £85,000 or more, you will need to register for VAT. But, some businesses might benefit from registering even if their turnover is below this. If you’re VAT registered, you will need to charge VAT on the goods and services you supply. You will also have to complete a lot of additional paperwork. However, you can claim back VAT you pay for goods or services relating to your business.
Do you need an accountant?
This is a difficult question and there is no definitive answer. For me it was a no brainer, anything to take away the stress of accounts. A few of the girls in the salon manage things themselves and hats off to them. If your business is brand new and you have a simple financial situation, you might want to see if you can manage by yourself, at least in the short term.
However, hiring an accountant can be a good thing as most can provide advice on tax planning and offsetting expenses against income. It also doesn’t need to be expensive.
Do I need a business bank account?
If you’re a sole trader or in a partnership, you do not need to have a business bank account. But, you might find it useful to keep your business and personal finances separate, particularly if you’re in a partnership. If you’re running a limited company you do need to have a business bank account. Like personal accounts, business bank accounts have a number of different features. I have always had two personal accounts, one is my personal and one I use purely for my business. This has caused me a few problems in the past, when I had to claim off my insurance I received the cheque under my business name, the bank wouldn't take it so I had to reapply for the cheque under my name. Little things like this stress me out and it having to reapply I had to wait longer.
Beware of the masked rules and regulation's
On top of qualifications, insurance and licences needed for treatments like massages, beauty treatments, saunas, sun beds, and manicures; we also have to deal with a range of planning and premises regulations. Health and safety is another big consideration for spas or salons, so note all hazardous products your business uses and obtain hazard data sheets from the manufacturers – keeping everything on file in case of inspection. Check out the Control of Substances Hazardous to Health (COSHH) Essentials, which will help you stay on top of safety laws.
As a beauty therapist, it’s your responsibility to make your clients look and feel their very best. Whether you offer eyebrow threading, spray tanning, facials or pedicures and manicures, your clients should leave their treatment with a new lease of life and greater self-confidence.
By the nature of your role, you’ll be working in close proximity to your clients so it’s important you’re covered by comprehensive insurance in the event that something goes wrong. Whether a client suffers an allergic reaction, falls ill as a result of your treatment, has a slip, trip or fall whilst in your salon or you accidentally damage a clients property when you visit them, clients are all within their rights to make a claim against you. Trying to overcome claims without sufficient cover in place can be a daunting task and seriously impact the livelihood of your business.
What you need to look for when signing up with an insurance company.
Public liability cover is particularly important for beauticians as it will protect you in the event a client makes a claim against you for a non-treatment related injury or damage during your visit to their premises or their visit to yours. For example, if you accidentally spill nail varnish or oil on a clients carpet or they trip and hurt themselves entering your property, you could come up against an expensive compensation claim.
Treatment liability cover is vitally important to protect you if a client sustains an illness or injury as a result of the treatment administered by you. For example, a client could claim you have caused irritation, burn or reaction from the treatment you’ve provided.
Product liability cover is important for beauticians who sell products in connection with their treatments, for example, creams for aftercare or products used during facials. This type of cover will protect you if a client suffers an allergic reaction from products sold by you.