Whether you’re looking to take your craft to the next level and become self-employed in your own startup or have dreams of becoming an efficacious entrepreneur extraordinaire, the first steps as a startup are often the most confusing. This article offers not only to help guide you through some of the more confusing parts of operating a business but also some of the laws you need to know how to navigate through before your startup can take flight.
Before we get started, it’s important you understand your market and your finances. Even before the covid virus stepped into our lives, most startup companies don’t start turning a profit until their second or third year, and approximately only 30% of startup companies will make it past their 5th year. Want to know how to make it past this fifth year? Well, don’t let these statistics dissuade you. Just be sure you have the appropriate financial reserves for your venture and don’t be too afraid to dive in and see what works and what doesn’t. Just make sure you’re following the law! If you have doubts or are worried, Multiko is a business support specialist and we’re always more than happy to help!
Our UK Government website has its own portal for help starting a business. It also hosts the resources for a lot of the paperwork you may need to submit to them.
You can press Ctrl + D on your keyboard to book mark this page and come back to it when you need it!
How to Build A Startup Company in 2021
Exactly how you will start your business depends on exactly what it is you do. If you sell small craft items such as gemstones, sculptures, or paintings, your only overhead for operating your business are the cost of the materials and any applicable taxes. If you’re only just starting out, and haven’t invested in marketing yet a lot of your work can be made to order with very little risk of an item not selling. This type of business can be started at home and start making profits right away!
Then there are the bigger ventures that start out with some monetary momentum behind them either in the form of loans or savings. This money is typically used to buy/rent property, pay employees, and support business infrastructure. This type of business might get some clients in its infancy, but that income might not match the overhead. A successful business leader has done their research and knows, generally, how long it might take for their business to become profitable.
How to Register Your Startup Business
The traditional first step in running your own startup business is to legally register it! Even if you’re only making small trinkets for friends and family, if you’re earning enough money, you have to pay tax, which means registering your business. Need to know how to do this? Well, especially In the case of becoming a sole trader, it’s actually rather simple. But first, you need to ask yourself a few questions…
What Kind of Company Legal Structure Should I Follow?
First thing’s first. You have to decide whether you want to become a sole trader, limited company, or a partnership. But it’s not actually quite as simple as it might look at first glance. Some limited companies only have one person working in them, some sole traders have employees. So what’s the catch?
Should I become a Sole Trader? What Is a Sole trader?
A sole trader is personally responsible for their companies finances. For tax and legal purposes, a person registered as a sole trader and their business are considered the same entity – so for example, a sole trader would pay income tax and not corporate tax. For this reason, especially if you have no employees, the sole trader legal structure is by far the easiest for a startup company to adopt and manage.
According to gov.uk, you must register as a sole trader if you earned more than £1,000 from self-employment activities during the last tax year (6 April 2020 to 5th April 2021). Although you can still set yourself up as a limited or partnership company, just be sure to do it before you start making money!
Should I become a Limited Company? What Is a Limited Company?
A limited company and its owner are legally considered two separate entities. This means that the business pays corporate tax, not income tax and the owner is not financially liable for their company. Any profits that a business makes belong to the business and not the owner.
There are also two kinds of limited companies.
What is a Limited by Shares Company?
A limited by shares company has shares and shareholders.
Private limited by share companies (LTD) generally only have one shareholder – the owner. A public limited by shares company (PLC) is a company like Gamestop, Activision Blizzard, or Tesla where shares can be bought and sold on the public stock exchange. A public company has tighter disclosure requirements, meaning they have to publicly show how their money is being spent.
As the owner of a limited shares company, you’re considered an employee of that company. This means that you will have to sign on to the PAYE scheme in order to pay yourself.
A common tactic for share-limited companies is to start out private, then at some point in the future, go public on the stock market to create a cash injection for the company.
What is a Limited by Guarantee Company?
This is the typical legal structure for ‘non-profit’ or charity companies, although you don’t have to be a charity to use this structure. The real difference is that instead of using shares and having shareholders, you have guarantors who are obligated to pay an agreed amount of money towards the company and any debts it may occur.
These guarantors may receive profits from the company, however, in doing so the company would forfeit any right to charitable status.
Am I a Partnership? What Is a Partnership?
A partnership is similar to the sole trader structure in that the partners are personally and financially responsible for the business, it’s just that there’s more than one person who owns it. The partners share the profits and only pay tax on their own share of that profit.
That said, a partnership doesn’t have to be an actual person. A limited company is regarded as a ‘legal person’ and can also be a partner. Yes, you read that correctly, a limited company can legally be considered a person.
What Kind of Legal Structure is Best for a Startup Company?
Whether or not you should register as a sole trader, partnership, or limited company is up to you and primarily depends on how much time and energy you are willing to invest. If you have the willingness and the time, registering your startup as a limited company will net you a greater profit margin (due to lower taxes) and will likely make you look like more of an established and professional business to the general public. But do keep in mind that it doesn’t just make more time to set up, it will take more time when it comes to doing taxes in future.
The legal burden is one of the biggest drawbacks to becoming a sole trader. If, for example, you need to take out loans to keep your business running, you are leveraging your own personal assets and money. As the owner of a limited company, you would not be leveraging your own personal assets should your plans fall through.
You can begin the process of registering your business on the UK government website: https://www.gov.uk/set-up-business
For help choosing a legal structure, contact Multiko.
Licencing and E-Commerce
For some businesses like e-commerce, you don’t need a license but you do need to follow some fairly simple laws. Please be advised that this is not legal advice. For legal advice from trusted solicitors, please use the Multiko Local Business to Business Directory.
Laws for E-Commerce
There are laws specifically for E-commerce, and the main ones include having a price breakdown before the customer actually purchases anything, which will include things like delivery cost, VAT, the individual item prices, as well as a total ‘to-be-paid’ price.
You can find a complete collection of these rules on the UK government website.
The “list the steps involved in a customer placing an order” rule is the reason a lot of ecommerce shops sometimes have a progress bar that lists the steps from payment options to delivery options. It’s not just good UX, it’s UK law.
Business Operating Licences
Businesses that involve events, food, or alcohol may require you have a license or permit to operate.
For help with your finances, look for a financial advisor in the Multoko Local Business to Business directory.
When you start your business, your main customers are likely going to be friends and family. If your product does well, you’ll also get some traffic from word of mouth.
Marketing isn’t just about getting your name out there but it’s about building a brand and efficiently getting your name out there. There’s no point in spending hundreds and hundreds of pounds on advertisements if you aren’t targeting a specific demographic, psychographic, or if your brand isn’t resonating with who you want it to.
In our last article about marketing, we discussed companies like Nike and Apple revolving almost entirely around their marketing department. We discussed why “In reality, good marketing is pairing an audience with a product, even if that means creating the product yourself.“ and that “Good marketing isn’t just about selling your product, it’s about selling a feeling“
For help with local and worldwide marketing, talk to Make A Difference Marketing, the ‘UK Enterprise’ award-winning Liverpool based marketing agency.
Human Resources (HR) is the department of a business responsible for all things worker-related. In a smaller business, the ‘HR department’ is generally just the business owner. If you’re part of your company’s HR team, you’ll be responsible for, or partly responsible for, all things related to hiring, firing, promoting, training, and paying your employees.
For help with managing your human resources, contact Multiko.
The Pay As You Earn scheme is essentially a channel for your business to pay tax on your employee wages. We advise you read the government page on PAYE.
If you own a business, you must register for PAYE, unless:
- None of your employees are paid £120 or more a week.
- Your employees get expenses and benefits.
- Have another job
- Are on a pension.
- Are a sole trader and have no employees.
In all of these cases, except for the last one where you are a sole trader, you must keep payroll records. Sole traders do not technically pay themselves a wage and therefore are not on a payroll.
How to Create Payslips as a Sole Trader or Limited Company
As a sole trader, you’re not actually obligated to create payslips for yourself. All money that comes to your business is already yours and is already taxed at the appropriate income tax level. You are, however, obligated to operate a PAYE payroll scheme and collect National Insurance Contributions if you plan to employ people. There is a similar process for Limited Companies. Take note that the tax you pay may be specific to your business and situation.
To create a payslip, you can do so using traditional print, or you can create an online payslip using a service similar to Sage Accounting, for example. Please note that employee payslips must come on or before the date of payment.
You do not need to provide payslips to freelancers or contractors you may hire.
According to gov.uk, A payslip must include:
- The employee’s earnings before and after any deductions.
- The amount of any deductions that may change each time your employee is paid, for example, tax and National Insurance.
- The number of hours the employee worked if their pay varies depending on the hours they work.
Employers must also explain any deductions fixed in amount, for example, repayment of a season ticket loan. They can choose to do this either on a payslip or in a separate written statement.
This separate statement must be sent out before the first payslip. Employers must update this every year.
Employee law is dangerous and costly to get wrong. Find and talk to a trusted accountant for managing finances using the Multiko Local Business to Business Directory.
As a business owner, there any many kinds of insurances, some are legally required, others are simply advisable. For example, if you have employees, you must have employers’ liability cover. If you work in digital and hold sensitive information, it is advisable you have some form of cyber liability insurance. In recent lock-down times, business leaders who invested in business interruption insurance would have been far less impacted.
Is there something we’ve missed? Would you like to share your thoughts and experiences? You can contact us on our Facebook, Instagram, or LinkedIn and have the chance to have your name and business added to this article!