Are you new to contracting? Or still thinking about taking the leap into self-employment? No matter where you are in your journey, there are several things that you should know about when setting up your limited company.
And, as we’re contractor accountants, we have a lot of knowledge to impart – and experience to share – when it comes to supporting you as you establish and grow a business.
Take a look at the top tips we believe all contractor newbies should take into account.
Know Whether Self-Employment is for You
Most people dream of being their own boss and answering to no one but themselves – but being self-employed is not that clear-cut. You still need to answer to your clients and make sure your work is error-free and delivered on time.
You will also need to work more hours than you believe, at least at the beginning when you’re still finding your feet, which means being a contractor may not fit your lifestyle if you’re unable to do this.
In addition, you must be self-motivated and disciplined to power through even when things aren’t going the way you planned them. This can mean anything from having the initiative to take risks sometimes.
If you’re not one hundred per cent sure this is what you want, why not start by being a sole trader? This operating structure gives you the chance to dip your toes into self-employment without having the added responsibilities and obligations that come from owning a limited company. You can then incorporate it at any time.
Research the Market
This may seem obvious, but it’s critical that you do your due diligence when it comes to analysing the market and determining whether there’s a demand for your services and products.
This is because not all business ideas will be viable, so explore all pros and cons, research the industry and check out what your competitors are doing – this will help you identify gaps in their services you can then plug with your own.
In order to research the market, find out where your customers are, what’s trending in your industry, what your future clients are looking for, the challenges of the industry, the marketing strategy that will be best suited for your particular business, and more.
Research Your Audience
Another important step you can’t miss before forming a limited company. Understanding your audience and how to target them should be part of your initial research, especially because, without clients, you won’t have a business to grow.
You may already have an idea of who your audience is in your mind. However, it’s still essential that you identify specific factors, such as their demographic, job and income levels. Figure out your competitors’ target audience to see whether you can improve on the services they’re already receiving, which will help you to make the most of an already existing audience.
Another important question you should ask yourself in advance is: do you have a large enough market to generate the profit you want? If the market or your target audience is small, you may not be able to grow to where you want to be or expand your offerings into other areas.
Choose the Right Company Name
When looking to set up a limited company, getting the name right carries a lot more weight than when you’re a sole trader. This is because you have to register with Companies House, which has a specific list of what can and can’t be company names.
For instance, you can’t pick a name that’s already registered and have to be mindful of names that are similar to existing ones – while it’s possible to register a similar name, if someone complains (especially if it’s trademarked), you may have to change it, meaning you’d lose all your branding and marketing efforts.
You must also include ‘Limited’ or Ltd’ in the name and, of course, you must stay clear of offensive names too. Naming your limited company is serious business, so let us know if you’d like to learn more about this topic by ringing us on 0330 107 9676.
We can set up a limited company for just £50+VAT if you’d like our one-off service, which includes registration, certification of incorporation, VAT registration, memorandum and articles of association, and more.
Think About the Types of Limited Companies
Setting up a company can be fairly straightforward but, before you do that, you must first decide which type is suitable for your business. You can choose from:
- LTD – This type of company, which is the most popular, is limited by shares, which means that only shareholders can own a percentage of the business.
- LBG – These are limited by guarantee and refer to charities and non-profits, as they don’t have shareholders. It’s the members of the board that make business decisions and are responsible for its debts, etc.
- PLC – These types of companies are also limited by shares, but members of the public are allowed to be shareholders. There are different requirements for PLCs, including a minimum of £50,000 of share capital.
- LLP – Also limited by shares, LLPs have partners instead of shareholders, who are all responsible for a part of the business (these partners can also manage the company directly without having to get a majority shareholder vote, for example).
While you should consider which one is best for your business model, you don’t have to do it alone – we can help you make the right decision, so speak to us before you incorporate.
Do You Know How You’ll Find Work?
You don’t have to worry about this when you’re in full-time employment, since you get work assigned to you by a supervisor, for example. However, when you’re a contractor, you have to do it all yourself – from advertising your business and paying yourself a salary to finding work and a steady income.
If you can’t find projects, you may start to struggle financially, so it’s important that you know ahead of time how you’re going to get work. Can you apply to jobs on LinkedIn? Does your industry rely on word-of-mouth? Is social media the best way to get in touch with potential clients? Do you need to attend networking events, like conferences?
Make sure you know what job search entails when you become a contractor, so that you can generate leads and create a reliable income source.
Get Insurance
Only employers’ liability insurance is mandatory in the UK when you’re running a business so, if you don’t employ staff, you don’t have to worry about it. However, there are many other types of cover you should consider, especially because some are specific to your type of business.
For example, if you’re an event organiser, you should have the right insurance in place to safeguard your company against cancellations, on-site fighting and damages to property.
You will also need to take other covers into account, such as public liability or professional indemnity, so it’s important that you select the right policies. We’ve partnered with Kingsbridge to provide you with expert contractors insurance and give you peace of mind at the same time.
Consider IR35
As limited company accountants, we’re well aware of just how important – and disruptive – IR35 is for businesses. This legislation aims to catch contractors disguised as employees and affects companies in the public and private sectors.
The latest reform says that responsibility for IR35 status determination falls to the end client or agency now, which means many companies will not want to hire contractors. We’ve seen this happening with Network Rail, as the organisation opted for a blanket ban to be as safe from IR35 as possible – however, they’ve now done a U-turn on this issue, which is good news for contractors.
We provide expert IR35 advice if you’re interested in learning more about how this legislation can affect you, as well as a free IR35 assessment from Kingsbridge when you become a Gorilla Accounting client.
Track Your Time
It’s important to make sure that you account for all your time, not just the hours spent working for a client, but also the rest of the time you wouldn’t think to log.
This will help you understand how much time you’re actually spending on a project – for example, if you’re getting paid £100 an hour, but you’ve not considered the time it took you to revise your project or to interview your client, then you’re probably making less than £100 an hour.
The saying ‘time is money’ couldn’t be truer when you’re working for yourself, so make sure that track every minute so you can better decide which rates to charge (or whether it’s worth it to take on a particular project or to even negotiate it).
Gorilla Accounting Helps Contractors
Whether you’re thinking about forming a company, you’re a start-up or a well-established business, we can help.
We’ve been working with limited company directors for many years and have a lot of experience in a range of sectors, from IT and medicine to architecture and engineering. Gorilla Accounting is also on top of the latest legislation, meaning you never have to worry about incorrect paperwork or information.
As a client, you also get 24/7 access to FreeAgent accounting software, which allows you to manage your accounts from anywhere in the world and from any device. When tax season comes around, you won’t have to spend hours tracking down receipts, expenses or transactions, since everything is in the same place.
We also provide you with your very own dedicated accountant. When you’re first starting out, getting expert advice on how to manage your company’s finances or how best to pay what you owe HMRC, can be incredibly beneficial, so send us a message and we’ll give you a call back!
