August 5th, 2006
Going it alone: Putting the pieces in place
First off, let me thank everyone for their kind words and support over the past week, it really has been fantastic. As you may know, a week ago, I handed in my resignation from the BBC. Before that day however, there’s been a lot to do in order to make the transition from employee to self-employed a little bit smoother. As I mentioned in my last post, I want to document this journey as much as I can so that I can look back in the months to come and see where I went wrong!
So, this first post is all about putting the pieces in place: Company and financial stuff, working environment and some systems.
Self-employment status
Before I start on this, I just want to make it clear that this has been my experience in the UK. I’m not offering financial advice, or even saying this is the way you should do it. Now, that said, where the hell do you start when you’ve made the decision to go freelance or start your own company?
In the UK, first of all, you need to tell the Inland Revenue that you are self-employed. At which point they’ll ask if you are a Sole-Trader, a Partner (in either an LLP or a normal partnership), or a Director of a Limited Company. There are other business types, but for simplicity (and because they were options available to me, I’ll stick with these).
Eighteen months ago, when I landed a fairly large freelance contract, it was obvious I needed to register with the Inland Revenue for tax purposes. The easiest way to do this is as a Sole Trader:
Sole Trader
Becoming a Sole Trader is the most straightforward way to set up in business. It’s quick and painless. The advantages are the accountancy bills will be cheaper than all the other options. The disadvantages are, if everything goes wrong, you are personally responsible for any losses the business makes. That means your house and possessions are at risk.
That last bit bothered me if I was going to set up my own business. I wanted some separation, financially, between myself and Emma and the business. So the next option I looked at was a Limited Company.
Limited Company
A Limited Company has to be registered with Companies House. The ‘limited’ means there is limited responsibility, or liablity, for business debts for the company’s directors. The company exists as a seperate legal entity. The disadvantages to this are you have to comply with a larger range of legal duties and the subsequent legal fees are higher.
On talking with my Accountant, he suggested that a limited company may be overkill at this point when forming a Limited Liability Partnership (LLP) offers the same limited liability, but with cheaper registration and ongoing accountancy fees. Sounds like a good idea to me.
Limited Liability Partnership
An LLP is a partnership between two or more business partners (in this case, Emma and I). Members, like in a Limited Company, are protected from personal liability and business debts. It now costs ?25 to setup, instead of ?95 and depending up on your turnover and how involved your finances are, your annual accountancy bill should be in the region of ?600 — ?1000. Not too bad.
Mark Boulton Design LLP. Officially.
So, that seemed much more straight-forward than a limited company at this moment in time. Mark Boulton Design LLP it was.
Some Systems
A lot of people who work for themselves in the creative industry are shocked by the amount of time account-handling takes. I’m beginning to realise this already. Whereas before, when I worked in agencies, there would be a few people who handled the finances, project management and day-to-day client contact. Now, it’s all up to me. If this is going to work, in that I’m not going to feel swamped by work, then I have to have some simple systems in place to help me.
My little app
I developed my app (which I’m hopefully going to take further into something a little bigger (but not much) and a whole lot better), which has already helped with giving me an overview of what’s been estimated, and what’s been invoiced. It has already helped with streamlining getting estimate’s together for clients as well. Whereas before, crazily, they were done individually in Indesign, now they are outputted from a system and it’s taken the task from one which could take half an hour, to one which takes five minutes. It’s these little savings in time across the board which, hopefully, will ease the strain when deadlines are looming.
Filing
Yes, dull. Filing. Who wants to think about that? Well, you kind of have to if you have a lot of little things on. Thanks to Emma and Ikea, I now have a very simple filing system shown on this photograph. White files are jobs on, black are complete. All project paperwork, including copies of estimates, are stored there and are just a arms-reach away.
White are for curent jobs, Black are for complete. Pretty easy really.
The Environment
My working environment is incredibly important to me. I consider it perhaps the most important factor in determining productivity and, well, just overall happiness in work. If you like your surroundings, you’re happier and happier people work better. With that in mind Emma and I gave the office at home a lot of thought.
Previously it looked like a spare room with a desk in it. It was fine, but not good enough if I was to spend every day in there. The separation between home and office needed to feel much larger. With that, paintbrush and Ikea catalogue in mind, we set to work.
A green wall, all-new furniture and some nice new carpet. Of course I don’t normally drink wine at work.
We stripped out everything. New walls, fixtures and fittings, carpet and office furniture from Ikea. It now feels like an office instead of a spare bedroom with a desk in it. Already when I’m working in here, I really don’t feel like I’m at home.
That’s it for now. Not sure what I’ll be talking about in the next post. Hopefully about how crazy busy I am.
Exceedingly interesting reading, Mark. Walking us through your process is very enlightening and the UK slant gives it even more relevance to me. Did you get VAT registered? I guess you probably would.. The new office looks great — liking the MB Green! Good luck and looking forward to the next installment.
Guy: No I’m not currently VAT registered, although I may have depending up on the success of his first year. If I turn over higher than the threshold, which is currently ?61K a year, then yes, I have to register for VAT. I was advised at this stage not to.
Very interesting Mark. Looking forward to more. Please, if you find the time, could you tell and show us more about you office and why you designed it this way (besides the office-home seperation thing). Or is it just that you happen to like bright green?
Matthijs: Sure. I’m planning on writing a bit about the office, with a few more pics, before it becomes a mess! But, yes, I do just like green. Simple as that really.
Mark, I’d probably suggest getting VAT registered straightaway as it will save you quite a lot of money on expenses, such as hosting, equipment purchases etc. If you use something like Quickbooks to manage your day-to-day book keeping, then vat returns are literally a one-click report every quarter.
It won’t make any difference to your clients — unless they are not registered themselves, which presumably wouldn’t really be your target market.
On the book keeping software side of things, ive been using liquid ledger (60 day mac trial). Seems quite useful. I can also confirm that registering for VAT is worthwhile since you’re bound to be a raving success and your company will inevitably turnover more that the threshold! I found a good book on amazon which is well rated called start your business: week by week. Under a tenner and well rated.
Congrats on the new “office”… I wish you many brainstorms spiced with a bit of good wine! :)
Agreed with Jeremy on the VAT registering. We’re in Australia where the 10% GST system is more or less the same. Remember, if you’re not registered, you don’t have to charge it but you also cannot CLAIM it either. Just think in terms of computer hardware, software, power, stationery, furniture — motor expenses etc how much this may cost you over a year. When in business for one’self it doesn’t pay to miss anything you are legally allowed to claim. In the first year or so, it may make the difference between being profitable and not.
Furthermore, at some stage (we hope) you will pass the threshold and have to register anyway and at this stage you’ll have to adjust your billing and accounts process — and believe me its MUCH easier to do this at the start when you may not be so busy as a year down the track when you really dont have time.
Regards accounting, we used excel to do our invoicing and accounts for the first two years and have just started using MYOB Accountedge (Mac). MYOB handles time billing businesses like web design very well and we should have done it sooner. I’m not sure about availability in the UK but we’re also using MYOB’s M-Powered invoicing which allows us to have direct pay and credit card payment options on our invoices without merchant facilities. They take and process the payments and drop the cash in our account — saves time, gets us paid quicker, win win!
Ad VAT — here in CZ it means more paperwork and in general hiring an accountant as the VAT records need to be penny-precise and handed off every three months. If you don’t mind paying VAT on the stuff you buy now, I’d wait if I were you.
Anyways, thanks for the insinght into your workflow, I appreciate you’re that open about these things.
By the way it reminds me Dan’s home-office:
A networking event, 26 October you may like to go to
http://www.financinggrowth.co.uk
Get some nice self promotional work done
Love the new office mate, the green is incredibly fresh and allmost acidic, can’t see myself getting tired in there. Also goes well with the beach finish wood.
Good luck with the new life :D
Good, useful, article — thank you.
(what model of phone is that? I’ve been looking for a solid, reasonable, *non cordless*, phone with an answering machine in it … yours looks just the ticket!)
I really like those filing folders :)
Thumbs up for the Ikea solution in that extra room !
interesting post Mark. I’ve heard good things about LLP, although it wasn’t available when I started up.
On VAT there are pros and cons. The obvious one not paying VAT on purchases, but I’ve found in the creative / web industry we don’t tend to have huge purchases (our highest costs are wages). Being VAT registered also lends an air respectability to a company.
On Cons the paperwork can be a pain. If you haven’t already I’d advise buying Sage or a similar accounts package. Also charity/educational customers tend to have to pay VAT (god knows why)
I believe if you end up making over the VAT threshold in an accounting year you need to back-charge VAT on all your previous invoices. May be worth checking with your accountant, but something to bear in mind. It’s rather embarassing having to go back to clients asking them for VAT on past jobs
> It?s rather embarassing having to go back to clients asking them for VAT on past jobs
Are you sure about that Simon? — I’ve never heard of that. You definitely used to be able to claim back vat you have already paid within a period before registering (think it’s 6 months or something).
Jeremy — no, I’m not 100% sure it’s just something I recall having a problem with in the past.
Thinking about it some more I believe it was related to some bad advice from an accountant. When we did register for VAT we were told to stick a certain date on the ‘When do you want to be VAT registered from’. That date passed and we hadn’t had the paperwork back from the VAT people. On the advice of our accountants at the time we didn’t charge VAT, though it turned out we should have done. So once we had the paperwork I had to go and re-invoice clients.
isn’t tax fun!
Simon — ah yes, that makes sense.
One of my clients has similar issue with Revenue and Customs taking ages to send number — but they still charged vat and put “pending” in the vat reg no. on invoices for 2 or 3 days until the number arrived. Not sure if that’s 100% the right thing to do — but was simplest :)
Its worth talking to your accountant as mine said he could submit 2 self assesments for me for 1 yr if I can prove that its serperate bussiness..
He suggested that consultacy would be submit on its own vs production.. Of course if you have seperate websites for consultacy and lets say design this would then be proof…
I’ll have to get more info from my accountant but it can worth the extra hassle..
Very interesting Mark, thank you!
I went freelance 3.5 years ago and had to discover all the same things out for myself—it can feel never ending.
At that time LLP were not available (or as simple as they are now) so we went for a partnership. Now we have two partners (myself and my wife) and to full-time employees.
The best advice I give anyone who asks about setting up your own business is to get a good accountant/bookkeeper. They really are worth their weight in gold!
We actually have both. Our accountant does our year end books, tax return etc, and they only get involved once a year. We then have a bookkeeper who does work for us once a quarter. She puts our invoices (both in and out) into Sage, does out VAT return, wages and generates month end financial reports. She then sends the Sage file to our accountants. We pay ?120 a quarter, but previously I used to do it all and it took me far longer in ‘paid’ time than that.
I’m very interested in your estimating app. I spend a lot of time doing estimates but they tend to be longer bespoke ones, which I’m not sure I could make systematic…
Good luck Mark and I hope it all works out for you.
Hi Mark,
I didn’t know about the LLP. I like it.
I hope this isn’t too intrusive, but you mentioned in the BBC resignation post that you did work on the side of the main job, I’m interested in how you keep the Inland Rev happy with all this, as it’s something that’s bugging me at the mo as I have the full time job and the freelance work is being paid via cheque.
Clem, tell Inland Rev ASAP! If you dont within the first three months of getting paid you’ll get a ?100 fine! Then apply for small earnings exemption from national insurance — if you earn less than about ?4500 through freelance. If you earn more than about ?4500 a year through additional earnings you will have to pay ?2.50 additional national insurance per week.
Loads of great advice..
I’ve never been happy being freelance..
freelance = nicer house,car, woman ;) etc.. hehehehe
Nice post Mark. I’m thinking about paiting our office too—what color-code is that green wall?
Mark,
Just found your site — an excellent resouce I will be returning often.
Best of luck with the new venture. I took the leap last November handing in my notice and going out on my own. My only regret now is that I didnt do it sooner.
On the subject of tools and systems — Im using Quickbooks Simple Start for my accounts — it basically produces my VAT return. Ive also found <a href=“https://www.freshbooks.com/subscribe.php?ref=54eddc1213972-1″>Freshbooks<\a> to be a very useful online invoicing tool.
Good luck — I look forward to reading about your progress.
Hi Mark,
All the best with the jump. As it happens, I’m considering doing the same thing at the minute, and as I’m sure you’ll know, making the final decision to go it alone takes a lot of planning and a huge amount of testicular fortitude! :o)
After reading your post, I discovered that in Northern Ireland, setting up a LLP with a local company registration shop costs the huge sum of ?138!! Makes the ?25 you splashed out a much better deal!! Did you register the LLP yourself or go through a third party?
Again, all the best with the freelance life.
Phil
Phil: Yeah, I just filled in the form to register via the Companies House website. The ?25 just covers registration. There are other potential costs, such as drawing up a membership agreement with a Solicitor, which you should do. As it happens, I’m not yet trading under the LLP (not until January), so I have a bit of time to sort that kind of stuff out.
Thanks for the best wishes.
Recent post on Lifehacker with the same topic: http://lifehacker.com/software/freelancing/technophilia-from-cubicle-to-couch-194458.php
Good luck Mark—it’s not easy, but it’s a lot of fun!
Phil:
Im in northern ireland too and I was intrigued by the LLP idea — but I guess you have to be a partnership to use it.
Out of interest what business are you looking at starting?
Davidb: looking at going full-time freelance as a web designer. Have a few web app ideas that I’m working on with some mates too, so it’d be nice to split the work up a bit better and have a life at the same time! :o)
Phil — I’m sorry? You want to run your own business AND have a life!?
If you work out how to do that — seriously –writea book, you’ll make a fortune. 8^>
Good luck with the business — ive struggled to find decent web designers in the past so if you are any good the work should flood in!
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