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STARTING A BUSINESS Q and A’s
Informed Women’s Business expert June Russell (M.A (Hons)., MSc, Dip ID) answers your start up questions…….
Q.I want to start a business but am totally confused about whether I should be just a sole trader or form a limited company. What’s the best way? (Sally H. -Livingston)
A. Setting up as a sole trader is by far the simplest option. You don’t have to pay registration fees or make complicated annual returns to Companies House. Keeping accounts is much easier and you get to keep the profits (though they are of course, taxed as income!). The downside is that you are fully and personally responsible for any debts incurred by your business. This may mean that your home and other personal assets are put at risk. A limited company is different in that the company is treated as a completely separate entity and the business’s finances are regarded as separate from the owners/directors. You would only be responsible for the companies debts if you give personal guarantees for any business loans. Accounts have to be filed annually with Companies House and audited by an accountant.
Q. I’m happily running a successful business from home but no-one takes me seriously! Should I just bite the bullet, get some proper premises and employ some staff? (Mona McC, Morningside)
A. Congratulations Mona! Great to hear of someone making a success of their business. While it’s no doubt true that staff and premises give a business the appearance of greater success it’s worth thinking through the likely costs - not just financial - of taking on staff and premises. When you sign an agreement to take on premises you are generally ’locked in’ to the full term of the lease regardless of how well your business is doing. There are a lot of hidden costs to taking on staff, including National Insurance, pensions, sick pay, maternity benefits etc. Also your working week may be less flexible than it would be working from home. If you wish to give your business a more professional image for your customers (rather than family or friends) consider using the services of a business centre. For a small fee you’ll have access to a professional-sounding address for your business, phone answering and secretarial services. That may be all you need. Good luck!
Q. I run a small hairdressers/beauty salon with three staff. We’re so busy I don’t have time to keep up with all the book-keeping, staff wages etc. I keep getting these ’manuals’ and updates from the government and I just haven’t time to read let alone understand them. Help! (Maddie S., Kirkcaldy)
A. Delighted to hear you’re busy Maddie! Your problem is easily solved. You can simply outsource your payroll and book-keeping ie hire the services of someone else who’ll do it for you! Look in your Yellow Pages under ‘Bookkeeping’ or ask around and get a recommendation. The service is usually cheap and will free you to concentrate on the most important thing - your customers.
Q. I’ve just received a sizeable bit of redundancy money and I’m thinking of buying a franchise. Where do I start and how do I know whether I’d be giving my money to a reputable business? (Liz McK, Corstorphine)
A. It pays to do your homework at this stage Liz. For full details see my separate article ‘ Buying a Franchise’. In a nutshell, you need to:
- Find a product or service you’re really enthusiastic about. Check out the main franchise magazines (such as Franchise World) and, if you can, attend some large franchise exhibitions and meet the franchisers.
- Check whether your franchisor is a member of the British Franchising Association. The BFA oblige their members to observe ethical practices.
- Visit both your franchisor (at his offices) and ask to meet with some existing franchisees. Find out if they’re a) making the kind of money they expected to make and b) whether the franchisor delivered on his promises
- Get professional advice from an accountant and a lawyer - preferably with experience in dealing with franchises Many of the major clearing banks have in-house franchising experts who can offer a wealth of experience and advice. Good luck!
Q. I’m currently running a Reiki business from an extension in my home and have been approached by a friend who is an aromatherapist as she’d like to share my ‘premises’. My husband says no as he thinks I might need planning permission. Surely not? (Barbara S., East Lothian)
A. Good question Barbara! Circumstances vary, but it’s always worth checking with your local planning office. In general permission should be sought if your business ‘takes over’ and alters the character of your residence and/or the surrounding environment. Permission might be required if:
- Noticeably more people or cars start arriving at your house
- Your business results in activities not usually expected in a residential area
- Your activities disturb your neighbours
- You employ workers who are not usually resident at your home
Q. I’ve just downsized and sold a lot of my unwanted stuff on eBay. I enjoyed it so much I’d like to start a business selling items on eBay. I’ve been in some ofeBay’s sellers’ forums and there’s a lot of talk about something called ’dropshipping’. What is that? (Alice W. South Queensferry)
A. For really in-depth information on setting up an eBay business see my separate article in IW’s main business section entitled ’EBay - Money Making Made Easy?’ To answer your specific question, how drop shipping works is that once you’ve identified a product you’d like to sell you find a ‘drop shipper’ who supplies that item (Worldwide Brands OneSource database lists a vast number of such wholesale suppliers and is reputedly a source used by many eBay Sellers!). You then place the images and descriptions on the eBay site and when they are sold you send the order direct to your drop shipper who then sends the product direct to your customer. Your profit is the difference between what the drop shipper charges you and what you charge the customer. The advantages
are that you need to pay for and store inventory that you may or may not sell. The downside is that you can’t take advantage of bulk-buying discounts and also your drop shipper may be willing to supply the same product to a number of eBay sellers thus creating competition and forcing down prices (and, therefore, potential profits).
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