Setting up as a sole trader: Part 1 – Three key tips for turning a profit

19 June 2017

Whether you’re setting up your own one-person business, or starting off down the road as a freelancer or contractor, you may be faced with a choice – do you become a limited company, or do you become a sole trader?

There are plenty of compelling reasons for becoming the director of your own limited company. But for many freelancers or self-employed business owners, the sole trader route is the fastest and least complicated way to set yourself up and start earning a living from your skills, hard work and experience.

So, if sole trader is the route you’re going to take, what compliance boxes do you need to tick, how will you meet your accounting needs and (the biggy) how do you make sure you’re paying the right amount of tax, while making the best profitable possible?

Getting set up as a sole trader

You’ve decided to take the leap, leave your existing job and go freelance. You’ve come up with a brilliant name you’re going to trade under and you’re ready to get started.

So, what do you have to do next? You’d imagine that there are reams of red tape and petty bureaucracy to wade through, but (brilliantly) there are only two compulsory boxes to tick:

  • Register your business for tax and National Insurance with HM Revenue & Customs (HMRC) and get a Unique Tax Reference (UTR).
  • Submit a self-assessment tax return at the end of the year.

That’s it. See, it’s not as complicated as you thought, is it?

The 3 key things every sole trader must get right

You COULD just get your UTR and send in your tax return at year-end and you’d be doing everything the Government currently requires of you.

But you won’t run a great business if you do that. To really make a go of your sole-trader business, you need to focus on three key areas:

  1. Research and finance
  2. Planning and performance
  3. Support and insight

These are the foundations for your business – and if you get the mix between all three just right, your self-employed business will go from strength to strength.

Let’s take a look at each of these three stages in a little more detail.

1. Research and finance

This first stage is all about doing your homework. You need to make sure you’ve got your business set up in the best way possible and have put some real thought into the financial effectiveness of your business model.

You’ll need to scope out your potential market, look into the equipment, tools and accounting software you’ll need and make sure your business model is actually founded on solid financial ground (and not on the quicksand of dreams and crossed fingers).

Do your research and start trading on solid foundations.

2. Planning and performance

The next stage is about building a plan – and making sure you stick to it. As the old adage says ‘A goal without a plan is just a dream’, so there’s real value in setting out your vision and doing the groundwork to measure how you’re performing against this goal.

To do this, you’ll need to create a clear business plan and budget, set the right goals and milestones, and track your performance over time to make sure you’re meeting the true potential and profitability of your business.

Get a proper business plan in place to set your goals

3. Support and insight

The final stage is possibly the most important one. And that’s about hiring a really great accountant who can help you kick your accounts into shape and bring their years of knowledge and experience to bear on the future success of your venture.

Working with professional advisers who understand your challenges means you get the guidance and support you truly need. And that helps to ensure your sole-trader business builds a customer base, has positive cash flow and turns over a tidy profit.

Work with an accountant to save yourself both time and money.

Follow the plan and make yourself profitable

All three stages of your sole trader journey are interlinked, but there’s one mantra that you really must stick to right from the very beginning:

“Follow the plan, look for the potential problems and take action when needed.”

If you keep that advice in mind, your new self-employed enterprise has a productive and profitable future ahead of it.

Over the coming weeks, we’re going to look at each of the three stages in the sole-trader journey in a bit more detail, starting with the need to get the basic finance elements right.

Who are FD Works?

At FD Works we’re an ambitious accountancy firm based between Bristol and Bath. We partner with startups, scaleups and established firms across a variety of sectors. Helping them to understand the drivers for growth in their business. 

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