One of the ways of creating other sources of income is running a side business together with having a full-time job. This can be a hobby that is being monetised, a service being provided or products being sold. In this blog I will be writing about the 5 points you need to consider and be aware of.
- Business Structure
The business structure is how the business is legally set up and this affects how the business is run, taxed etc. Examples of business structures in the UK include Sole traders, Partnerships, and Limited Liability Companies. It is important to consider your business objectives and long-term goals. This will affect how you to set up the business. You need to be aware of the different types of structures and the best fit for your business for example with Sole traders, the business and the owner are regarded as one entity, therefore creditors can go after the owners property if there is unpaid debt. With a Limited Liability Company, the owner and the business are regarded as different legal entities.
For more information visit, https://www.gov.uk/set-up-business
- Tax Planning
When you are considering the Business Structure, it is important to also consider the Tax implications of your decision. In the UK, personal income is taxed at different rates therefore, if you are already paying tax at the high tax band you may need to fully consider the type of business structure you put in place. If you envisage that the business will grow, it is advisable to speak to a professional with regards to how to structure your business from the onset. For example, in the UK, if business revenues exceed £85K they have to register for VAT. It is also important to seek advice on how to effectively pay yourself as a Director and how this will affect your personal taxes.
- Business Insurance
With most businesses it is important to have insurance in place. This will depend on the type of business that is being run, services being provided and products being sold. It is important to do your research on the type of insurance you will need to have in place and what it will and will not cover. In some industries it is mandatory to have Business insurance in place therefore, it is important to look into this.
- Money Management
For most businesses one of their goals is to breakeven (make enough revenues to cover their expenses) and ultimately make a profit. In order for this to happen, it is important to be able to effectively manage the business finances. The first thing to do is, set up a good invoicing system, money collection methods and the payment terms. It is important to note that revenues are not the same as profits, so when money comes in, it’s important to ensure that all expenses have been covered before spending the money on personal uses. It also imperative to have cashflow forecasts especially if you have contractual obligations. Having a forecast in place helps you to proactively manage any future cash shortages.
- Growth Potential
Does the business have potential to grow in the future? If so, it is good to look into potential growth strategies that you can implement. This includes, product development, diversifying the services or products sold, penetrating new markets, merging or collaborating with other businesses. This will also drive the branding and marketing strategies that you will implement for the business, for example, if a business starts by selling bags of sweets and wants to eventually expand into the desserts industry, the name chosen for the business may need to reflect this.
Knowing this information will help you to work with a goal in mind, understand the compliance requirements of running business and enable you to set up the business correctly on the onset.
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