Starting a Small Business

When starting your own business it is best to get all the advice available. Here are a few points to take into account.

Being your own boss

Being your own boss, despite all the red tape and competition you'll face, still appeals to anyone with a great business idea, and the time, energy, finances and good health to see it through.

But like a driving test, success depends not just on knowing how to handle a car, but on coping with the other traffic on the road. Equally, you should only be let loose on the highway when you are confident you can make money from your product or service and manage your own business and staff.

The taxman, VAT inspector, rating officials and Health and Safety Officers wait round every bend to check up on you. Your competitors will as soon carve you up as help you if you break down.

The best apprenticeship

In fact the best apprenticeship is learning (and making mistakes) as an employee, then go to every trade fair, exhibition or conference that covers your subject; read up on the regulations; make contacts. Every business is a people business – understanding how to handle staff and customers productively could well put you ahead of the competition.

Whether you start from scratch, buy an existing business or invest in a franchise, you must decide between self-employment, a partnership or a limited company. Consider also the consequences if you need to extricate yourself from your commitment or sell the business.

Liable for business debts

A sole trader or subcontractor is self-employed and liable for business debts but is independent . Each member of a partnership is normally self-employed and liable for the business and often personal debts run up by all other partners, so is risky. Even husband and wife partnerships should draw up a legal contract identifying the proportion each owns and how it will be split on sale, liquidation or divorce.

Benefits of a limited company

A limited company protects you from the liabilities of the company, and creditors can only claim against the assets of the company. A company must submit annual returns and conform with other legislation, although there are tax advantages. A company needs a minimum of two members; you will be an employee of the company. Write for details to The Registrar of Companies, Crown Way, Maindy, Cardiff CF14 3UZ.

The Federation of Small Businesses publishes a free "Be Your Own Boss" pack (ring 01253 336000) explaining the pros and cons of each scenario and more. The DTI's Business Link also publishes guides to setting up in business, marketing, exporting and finding finance.

The right name

Give your business a memorable name and phone number – or freephone number – and decide on your unique selling point. Establish an identity for your product, packaging and stationery. If you are launching a new product, check with the Patent Office in Newport.

You'll also need an accountant to advise on ways of keeping down your tax and VAT bills. If you plan to take on staff, an employment law specialist will steer you away from the pitfalls. The latest legislation sets minimum pay rates for most staff, and maximum working hours. More generous conditions will cover staff after just one year's service, including maternity leave, dismissal, and domestic incidents. Rules for subcontracting in the building industry are even more complex. .

Rent advice

If you rent commercially, avoid leases with rent reviews which automatically increase each year. Also refuse any covenants that could hold you responsible for previous tenants' debts – these still exist! Allow for business rates and insurance in your budget.

As well as administering wages, tax deductions and National Insurance contributions, you will also have to cope with the new Working Families Tax Credit and perhaps provide ancillary benefits such as pension and private medical insurance schemes. If you don’t have the knowledge or time to tackle this in-house, use a professional payroll service and your Independent Financial Advisor.

Help is available

Help is also at hand through your professional body or trade association (join up and use their expertise ruthlessly) and often from your local enterprise board. It is in your community's interest that you succeed, creating employment and wealth. Find out about the grants available, free trainees from local colleges, and sales drives you can ride on the back of.

There are a dozen ways to cut costs at the outset, if you can resist the temptations of a sumptuous office, brand new equipment and a flashy car. Leasing, hiring, or buying at auction all offer cheaper alternatives. You can find almost anything via the Internet. You will need all your capital for materials, running costs, wages and transport. Insufficient funding could well put you out of business.

If you need to borrow money, look at alternatives to the banks who charge high interest, ask you to sign over your home as collateral, and demand a business plan. An alternative for under-30s is a loan from the Prince's Trust who can be contacted on 0800-842842. Your Independent Financial Advisor may be able to advise which option is best for you.

UK and European funding may be available

Some areas of Britain have UK or European funding available to help new businesses, so consider relocating as long as it is still accessible to customers and won't add to your distribution costs.

Avoid allowing a single customer to contribute too much of your total business.

If you lose him, it could cripple your business. If you can still come up smiling, you'll join over 3 million other successful small firms to form the backbone of Britain's economy.

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