Setting up a business as a sole trader
Your step-by-step guide to setting up your business as a sole proprietorship.
If you’re launching a business by yourself, setting up a sole proprietorship is your simplest option. It’s far less complicated than setting up a corporation.
However, there are still a number of essential steps to take. In this guide, you’ll learn what these essential tasks are and how to complete them.
Step 1. Should sole traders write a business plan?
Technically, you don’t need to write a business plan, unless you’re seeking outside investment. However, this remains a hugely beneficial task for sole traders either way.
A business plan helps you to understand why your business will be profitable. When written properly, it will help you identify and overcome potential hurdles before they pop up.
Your sole trader business plan should include the following sections:
- Business name and address.
- Your mission statement. Why does your business exist? What do you hope to achieve? What is your vision for the future?
- Your target market. Include as much detail as possible. Write down why you have chosen to serve this demographic. Is there a gap in the market?
- Products and services. A full list of what products and services you offer. How much does it cost to deliver each of them? How much will you sell each product and service for? What is the net profit?
- Competitors. Who are they? Why would customers choose you instead of them. What is your unique selling point?
- Marketing plan. What platforms will you use to market your business? What is your budget for each platform?
- Financial plan. What are the estimated monthly running costs of your business, including the cost of launching? What are your monthly sales forecasts and how much profit will that attract? It’s good to have a minimum target, base target and stretch target.
It’s recommended to review and tweak your business plan at least once every quarter.
Step 2. How to register as self-employed in the UK
Sole traders should register as self-employed with HMRC at the earliest possibility. You can do this by visiting the government’s online registration portal.
You’ll need to decide on a business name, although most sole traders choose to use their own name.
After filling out your details, HMRC will post you a 10-digit Unique Taxpayer Reference (UTR) and login details for your online account. Keep hold of these, as you’ll need them to fill out your self-assessment form online.
Step 3. Set up your space
Most sole traders are able to work without having to rent office space. Still, if you need a dedicated place of work, there a few cut-price options. Investigate whether a virtual office, co-working space or a serviced office could meet your needs. These are typically all cheaper than renting traditional office space.
No matter what your business is, an online presence is crucial in 2020.
As such, you’ll need to set up:
- A professional website with web hosting and a unique domain name
- Social media profiles
- A presence on Google Maps and other listings websites in your niche
Step 4. Open a business bank account
A business bank account basically works like a personal one – the main difference is that it’s dedicated to your business’s finances. You should therefore expect the same features, such as a debit card, the ability to make and receive payments, an overdraft option, a banking app and so on. You can compare business bank accounts here.
Step 5. Setting yourself up financially
It may cost you a fair amount to launch your business, especially if you have a lot of equipment to buy. Our guide on business financing can help you find the best way to fund this if you don’t have money saved up.
Make sure to keep accurate accounts of your spending and your income ready to submit to HMRC for the end of the tax year. Remember that most business expenses are tax-deductible.
Step 6. You may need small business insurance
Here is a list of small business insurance products you may need as a sole trader.
- Public liability insurance (PLI). Protects you against claims resulting from customers or employees injuring themselves due to the activity of your business.
- Professional indemnity insurance (PII). Protects you against legal claims for damages if your business negatively affects a customer.
- Product liability insurance (PLI). Protects you from paying for damages to property or personal injury caused by your products.
- Business contents insurance. Protects you from covering the cost of lost or stolen contents.
- Personal injury or sickness insurance. Pays you a monthly income if you become injured or too sick to work.
Step 7. Can sole traders employ people?
Yes, sole traders can employ people. When doing so, you’ll have the same responsibilities to your employees as a corporation does.
These responsibilities include:
- Registering as an employer with HMRC
- Paying taxes on your employee wages
- Creating an employment contract
- Setting up a payroll system to automate payslips for your employees and deduct the right amount of tax from their wages
- Setting up your employees for pension auto-enrolment
It will help to read up on various aspects of employment law, including the rules surrounding working hours, minimum wage, maternity leave, hiring and firing regulations, employee discrimination and so on.
Step 8. Begin marketing your business, and hopefully profiting
With an effective marketing strategy outlined in your business plan, there should be no reason not to start marketing from the day you launch.
An effective marketing strategy should start attracting customers immediately.
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