Do you dream of running a business from home? Being able to manage your own working hours without the tiresome commute may be a goal for many, but what do you need to do to make your home business plans a reality?
In the last ten years, the internet has transformed home businesses. Thanks to social media platforms, it has become easier than ever to get in touch with the people who want to buy your products or services — without ever having to leave your sofa. The internet revolution has also cut the cost of a business startup: there’s no need for an expensive ‘bricks and mortar’ store. Instead you can start small, go online, test out your ideas and expand. Despite this shift, there is more to running a home business than you might think. Understanding the basics, however, will allow you to save costs, time and effort in the long run.
Formation: limited company or sole trader?
When you are thinking about starting a company, you need to decide which formation type would best suit your business. You could register as a sole trader, work in a partnership or form a limited company. While a sole trader may seem the simplest way to start, it can limit the growth of your business. For example, as a sole trader, there is little distinction between you and the business. This means that any business debt your business accrues becomes your personal debt. Alternatively, a partnership is a good option if you will be working with someone else. You can create an agreement about how the business will work which can save problems down the line and a limited liability partnership can also help to protect your personal assets.
Forming a limited company has a number of advantages. For a start, your personal finances are separate from the business. And once your home business starts to generate more income, limited company status will allow you to be paid some income as an employee, and the rest as dividends. This means that you (and your accountant) can work out the way that is most advantageous to you in tax terms.
Managing your finances
You may think that you don’t need an accountant if you are just starting a small business from home, but gaining specialist financial and legal advice when you start a business can have long-term benefits. For example, an accountant could advise you on how to claim some of the expenses of running your home against your business, saving you money in the long-term. Additionally, if you decide to set up as a limited company, you’ll need to prepare annual accounts each financial year. These are filed with HMRC as part of the company tax return and will be sent to all shareholders and Companies House. A limited company must also file a Confirmation Statement with Companies House, which includes information about the directors, shareholders and registered office. Having an accountant on-hand to give advice in these instances may be crucial to getting these important jobs done correctly.
In contrast, sole traders are not legally required to have or file annual accounts, but they do still have to keep a record of business expenses and income to fill in their tax returns. So whichever formation structure you choose for your business, invest some time in speaking to an accountant and a bookkeeper about the services they offer. As your home business grows, you might find it’s more efficient to spend your time developing the business, than keeping the books.
Don’t forget business insurance is still a necessity, even if your business is based at home. You need to cover your stock and equipment, and if you have people visiting you at home, you’ll need public liability insurance to make sure that you are not liable to any accidental injuries (you never know). You should also notify your home insurance provider as operating a business from home will inevitably affect your policy. There are also specific insurance policies available if you have employees, and professional indemnity insurance is a must if you offer professional services.
Marketing your home business
With all the paperwork in place, you can start thinking about how to reach the people who want to buy your products or services. A website is a real must nowadays, and a presence on Facebook, Twitter or Instagram can help your business reach customers where they are browsing already. Fortunately, there are a number of templates that allow you to easily set up a website at little or no cost. Don’t forget that your IT needs may become more complex as your business grows, and a simple startup site may need developing into a custom website, specifically tailored to your business. However, remember to not get ahead of yourself when it comes to marketing. Spend your time analysing consumer buying habits first so you can develop a broad picture of who need to target in order to sell. Do they value sustainability, for example? Being able to answer these questions will allow you to tailor your marketing efforts from the start. And, from there, refine as you go.
Depending on the type of business you offer, however, traditional methods such as distributing leaflets locally and putting up posters can also pay off. Back this up with good old-fashioned business cards and leaflets for happy customers to pass on to friends. There is much more to marketing, which you can discover in our dedicated business advice resource.
Starting a home business is straightforward once you get the initial paperwork in place. Whether you need accounting consulting to assist with formation, or help setting up your website, Companies Made Simple are on hand to take some strain off the process. You can learn all about our formation packages right here.