Mark Boulton

This art­icle was pub­lished in .Net magazine before Christ­mas last year. I was asked to write a small art­icle on mak­ing the leap to work­ing for your­self (as it was still fresh in my mind). It’s by no means a defin­it­ive guide (for example, there is no men­tion of the legal aspects of set­ting up and run­ning a com­pany). It’s also aimed at a UK mar­ket, but a lot of this will work no-matter what coun­try you’re in. Most of it is actu­ally just com­mon sense. 

It’s been eight­een months since I went freel­ance, and almost six months since start­ing my small design stu­dio. I’m no expert. So, this art­icle doc­u­ments what I did, and when. It also fea­tures a little inter­view with our very own Colly.

[Art­icle ori­gin­ally pub­lished in .Net magazine in Novem­ber 2007]

So you want to work for your­self? And why not. You can dic­tate your own hours, have the free­dom to take time off when you want it without get­ting into trouble from the boss; you can do what you want to do, when you want to do it. At least, that’s what I thought when I star­ted work­ing for myself a year ago. I couldn’t have been more wrong. 

The free­dom of being in con­trol is ter­ri­fy­ing. The pres­sure of know­ing it really is down to you whether you suc­ceed or fail can weight heavy. 

Where I live, in Wales, almost 400 people a week start their own busi­ness. Every­body is dif­fer­ent and end up giv­ing it a go for a vari­ety of reas­ons. How­ever, most of these people share com­mon ground. Things that they need to think about when plan­ning to go it alone. 

As I said, I’ve only been my own boss for a year now, so I wouldn’t call myself an expert on this. I can how­ever tell you my story, and the mis­takes I made along the way. 

Why do it in the first place?

Start­ing a busi­ness is one of the most chal­len­ging, but reward­ing, things you can do. The reason most people never end up doing it—although I’m sure many would love to—is because they think it takes luck, a clever idea or just know­ing the right people. That’s not true. It’s about you. 

Maybe you have a great idea that you just can’t keep a secret any­more. Maybe a col­league has approached you to setup busi­ness with them on the back of a con­tract they’ve just secured. Maybe you just hate your job and wish you were your own boss. The cata­lyst is dif­fer­ent for everyone.

For many people, includ­ing myself, they’ve found their career take a cer­tain path where self-employment is the next nat­ural pro­gres­sion. I was work­ing full-time at the BBC as a designer when my enquir­ies to do freel­ance work reached such a peak that I was doing two jobs. At that point, one of them had to go before my wife did! 

Whatever the reason to set up busi­ness, it’s a per­sonal one that only you can make. 

Do you need a busi­ness plan?

A Busi­ness Plan is just that; a plan about your busi­ness. It’s used to look ahead, alloc­ate resources, focus on key points, and pre­pare for prob­lems and oppor­tun­it­ies. It doesn’t need to be a scary doc­u­ment that you take months to write. How­ever, some banks, investors, or other fund­ing bod­ies will insist on a well-written, con­cise Busi­ness Plan on which to base their decisions, so in that sense, it’s a very import­ant document. 

A stand­ard busi­ness plan will con­tain the following: 

1. Exec­ut­ive Summary:

Write this last. It’s the sum­mary of the document.

2. Com­pany Description:

This details how and when the com­pany was formed.

3. Product or Service:

Describe what you’re selling.

4. Mar­ket Analysis:

You need to know your mar­ket. Estab­lish the need for your product and why people need it.

5. Strategy and Implementation:

Be spe­cific. Investors love this stuff. They need to know you have a clear plan of attack.

6. Man­age­ment Team:

Include back­grounds of key mem­bers of the team.

7. Fin­an­cial Plan:

Include a profit and loss account, cash flow break­down and a bal­ance sheet. 

Make no mis­take, writ­ing a busi­ness plan can be a daunt­ing pro­spect, but it doesn’t have to be great the first time around. A busi­ness plan should be revised through­out the busi­ness’ life­time — it’s not just for star­tup busi­nesses. I’ve just gone through my third draft in my first year of business.

As usual, the web has some great resources to offer. The BBC has a good over­view of ‘How to Write a Busi­ness Plan’ (http://news.bbc.co.uk/1/hi/business/2943252.stm).

Get help

This is per­haps the most import­ant step in set­ting up your own busi­ness. You will real­ise you can’t do it on your own. You will need good advice from the fol­low­ing people: 

1. An account­ant:

Prefer­ably a small busi­ness specialist.

2. A bank manager:

All new busi­nesses should be alloc­ated a small busi­ness spe­cial­ist from their chosen bank.

3. A fin­an­cial advisor:

You will need the advice of some­body who can assist in the fin­an­cial dir­ec­tion of the company.

4. The Gov­ern­ment:

Yes, the gov­ern­ment can help. 

Out of all of these, I’d advise you spend the most time try­ing to find a really, really good account­ant. Many busi­nesses own­ers will tell you that a good one is worth their weight in gold. In addi­tion to the usual accounts stuff they can give you invalu­able advice. 

A great source of busi­ness advice for Eng­land and Wales is the Busi­ness Link web­site. (http://www.businesslink.gov.uk) Here, you can find inform­a­tion on start­ing up and fund­ing options, to Health and Safety and employ­ing people.

The dif­fer­ent kinds of ‘company’

To register as self-employed in the UK, you have to register with the Inland Rev­enue as one of sev­eral com­pany types: 

Sole trader

Being a sole trader is the easi­est way to run a busi­ness, and does not involve pay­ing any regis­tra­tion fees. The down­sides are you are per­son­ally liable for any debts that your busi­ness incures and, if you do well, you could be pay­ing high income tax. 

A Part­ner­ship

A part­ner­ship is like two or more Sole Traders work­ing together. You share the profits, but also the debt. 

A Lim­ited liab­il­ity part­ner­ship (LLP)

An LLP is sim­ilar to a Part­ner­ship. The only dif­fer­ence is the liab­il­ity, or debt for example, is lim­ited to invest­ment in the company. 

A Lim­ited liab­il­ity companies

Lim­ited com­pan­ies are sep­ar­ate legal entit­ies. This means the company’s fin­ances are sep­ar­ate from the per­sonal fin­ances of their owners. 

Fran­chises

A fran­chise is like a license to an exist­ing suc­cess­ful business. 

Social enter­prises

This one prob­ably doesn’t apply to web devel­op­ment. Accord­ing to Busi­ness Link, Social enter­prises are ‘… busi­nesses dis­tin­guished by their social aims. There are many dif­fer­ent types of social enter­prises, includ­ing com­munity devel­op­ment trusts, hous­ing asso­ci­ations, worker-owned co-operatives and leis­ure centres.’

This is some­thing you must do in order to pay your taxes. Speak to your account­ant about which will suit your needs better. 

How to fin­ance yourself

Before I made the leap into full-time self-employment, I read a lot of art­icles which said I’d need six months salary in the bank before I went out on my own. Although that is good advice, depend­ing on your salary, that is quite a hefty chunk of cash that will be hard to save. 

Like most people, I didn’t have that sort of money knock­ing about so I had to have a close look at cash flow over the first few months of busi­ness to ensure I could pay myself. This cash came from sev­eral sources. 

1. Money in the bank.

I did have some money in the bank. Not a huge amount, but I had some.

2. Con­tracts.

I had a num­ber of con­tracts signed and ready to go when I went on my own. These proved invalu­able in kick-starting my cash flow.

3. Fund­ing.

There are many fund­ing options avail­able. Grants, loans and private invest­ment. All of them except grants require you to pay them back though, and for that you need a good busi­ness plan and an idea of how you’re going to pay them back. Grants (and small busi­ness loans) are avail­able from local gov­ern­ment bod­ies for example. I’d advise mak­ing an appoint­ment with your local Busi­ness Link to dis­cuss your options.

4. The Bank.

Get an over­draft facil­ity. Mostly, even for lim­ited com­pan­ies, these will have to be per­son­ally guar­an­teed — which means if you default on pay­ing it back then you’re per­son­ally liable — but they can provide a vital buf­fer for cash flow in those early days.

5. Charge up-front.

When you get a con­tract in, espe­cially if it’s for fixed cost, then charge a per­cent­age up-front. This will help with the cash flow. If you can’t charge up-front, then make sure you charge monthly. Again, it will keep the cash flow nice and happy.

Basic account­ing

What is Cash Flow?

Cash Flow is the life blood of your new com­pany. It’s the ebb and flow of cash com­ing in and going out. The aim is to have a pos­it­ive cash flow, so there is more cash com­ing in than there is going out once you deduct all your overheads. 

You will also need to fore­cast your cash flow. This is still one of the most sober­ing things I have to do reg­u­larly because is clear shows the cur­rent state of your busi­ness. Every month I review my cash flow and I fore­cast for three months, and for six. I make a list of all the invoices which need to be sent in those two time peri­ods and make sure I’m hit­ting my monthly and quarterly cash flow tar­gets. Like I say, it can be scary at times. 

Tax

There are two types of tax: Income Tax and Cor­por­a­tion Tax. For Sole Traders, Part­ner­ships and LLP’s, you will be charged income tax on your profits. That’s import­ant, so I’ll say it again. You’ll only be taxed on your profits. Things like equip­ment costs, rent, phone and other office expenses are deduc­ted from this.

Lim­ited com­pan­ies are charged Cor­por­a­tion Tax on their profits. The employ­ees of that com­pany are charged income tax on their income. As with a Sole Trader etc. Lim­ited com­pan­ies are only taxed on their profits. 

VAT

If your busi­ness earns £64,000 or over in a fin­an­cial year, you have to register for VAT. If you think you might hit that tar­get dur­ing the year, you can vol­un­tar­ily register before hand. 

Being VAT registered means you have to charge your cus­tom­ers for VAT on top of your ser­vices. Cur­rently in the UK, VAT is 17.5%. You’re in effect col­lect­ing taxes for your gov­ern­ment. Nice aren’t you? One of the advant­ages of being VAT registered is that you can claim VAT back of pur­chases for your busi­ness. Say you bought a new com­puter, you could claim the VAT back from that purchase. 

All this VAT gets added up and you have to pay the gov­ern­ment every quarter. 

For more inform­a­tion of your oblig­a­tions as a busi­ness to pay your taxes, go to the Inland Rev­enue web­site. There are some great tools on here to help you — you can even file your taxe return online. 

Estab­lish­ing a cus­tomer base

Prior to start­ing my own busi­ness, I worked full time. As a designer, or developer, you will prob­ably get enquir­ies to do freel­ance work in your spare time. This is the time to start build­ing up your cus­tomer base whilst you still have the secur­ity of a full-time job. Sure, it means burn­ing the candle at both ends, but it does ensure a smoother trans­ition from employed to self-employed. 

Schmooz­ing

A good way to drum up busi­ness is to net­work. This can be done tra­di­tion­ally, such as Busi­ness Club lunches and events organ­ised by your local author­ity. One of the most effect­ive ways of get­ting your face known is by attend­ing the many web con­fer­ences, work­shops and meetups going on through­out the coun­try. From Pub Stand­ards and the Oxford Geek Nightsto the lar­ger con­fer­ences such as @Media and dCon­struct. They all provide a great plat­form to meet people in the industry who may require your services.

Con­trib­ute and Inter­act with your market

If you’re a design stu­dio who designs web­sites but has a strong focus on User Exper­i­ence design, then write a com­pany blog about that sub­ject. If you write inter­est­ing con­tent, and give it away free, then traffic to the site will increase as will your page rank in Google. This means that if a poten­tial cli­ent searches for User Exper­i­ence, they will get your site in their search res­ults and there is a clear path into your site from some qual­ity content. 

Giv­ing a little qual­ity con­tent away for noth­ing may make the dif­fer­ence in land­ing that big next project. 

Mak­ing the switch from being employed to self-employed

The power of the Day Job

If you’re employed, but plan­ning to go freel­ance, then keep your day job for a while. Get work in to work in your spare time, but use the cash that gen­er­ates as a buf­fer for when you do go it alone. Make sure the two worlds don’t col­lide though. Keep your boss happy in work, but now is the time to be a bit of a jobsworth. Get in on time, leave on time, take an hour for lunch — do everything you can to max­im­ise the time you have avail­able to work on the freel­ance projects.

A smooth transition

Work­ing two jobs is hard, and you won’t be able to keep it up for long. This stage in start­ing up your busi­ness is per­haps one of the most dif­fi­cult. The aim is to ensure a smooth trans­ition from being employed to self-employed. You will need some cash in the bank, a few con­tracts for your first couple of months of being on your own. The hard thing is keep­ing you cur­rent boss happy in the pro­cess. It’s not easy. 

There are a num­ber of great job boards which advert­ise design and devel­op­ment pro­jects reg­u­larly. The two I’ve used suc­cess­fully in the past to drum up some busi­ness are the 37Signals Job Board, and Cameron Moll’s Authen­tic Jobs.

How to achieve long term success

Keep one eye on the future

For­cast­ing busi­ness can be quite dif­fi­cult. How does cash flow look in three months time? Are you sav­ing enough money for the end of year tax bill? To suc­ceed in busi­ness I think you need one eye on the present and one eye fixed firmly in the future. The short-term future. Whilst it’s great to have dreams and aspir­a­tions for your new busi­ness, that shouldn’t be at the expense of ensur­ing you have enough work com­ing in over the next six months. 

Cus­tomer service

Remem­ber if you’re a designer or developer, you’re provid­ing a ser­vice. We’re in a ser­vice industry and with that comes Cus­tomer Ser­vice. I know it may sound a bit trite, but treat cli­ents as you would like to be treated. Treat them with respect and never lose sight of that fact that they are pay­ing the bills. 

Wrap­ping up

Mak­ing a leap of faith is the first step to start­ing a busi­ness. How­ever, for your busi­ness to grow and flour­ish, you will need much more than faith. First off, you must have upmost con­fid­ence in your abil­ity to make it work. You need to be aware of the risks, but not scared to death by them. You’ll need to have good organ­isa­tional skills, flex­ib­il­ity and a high degree of com­mit­ment. Most of all, you need to have fun and love what you do. 

Inter­view: Simon Collison

[The fol­low­ing is an inter­view con­duc­ted in Nov 2007]

Q. Why did you end up work­ing for yourself?

After four happy and suc­cess­ful years with another great agency, I did start to dream about being in con­trol. I’d some­times receive offers to work for other people, but noth­ing ever grabbed me. I’d get a few people email­ing me every week with requests for web­sites, and I grew in con­fid­ence, real­ising that I could actu­ally earn enough money to sur­vive. Gen­er­ally, I just wanted to nit­pick cli­ents and decide who to work with on projects. 

Q. What do you love about work­ing for your­self now?

The autonomy. I love mak­ing my own decisions and being in total con­trol of the dir­ec­tion in which we are head­ing, the cli­ents we choose to work with, and being able to hand­pick colleagues! 

Q. What don’t you like about it?

Hmm, lots. The hours (I did over 100 hours last week). In gen­eral, it can take over your life if you want to pro­duce qual­ity work with no cut­ting of corners. Sac­ri­fices are inev­it­able – everything from work­ing the major­ity of even­ings and week­ends to miss­ing your best friend’s birth­day. If there is an immov­able dead­line and the work needs doing, the buck stops with you, and no excuses are good enough. 

Per­haps the biggest shock to the sys­tem is the unavoid­able respons­ib­il­ity for ensur­ing that cash flow is steady and that we have enough money com­ing in to pay the wages, cover office rent and gen­eral overheads. 

Q. If there where three key pieces of advice you could give to someone who was think­ing of going into busi­ness for them­selves, what would they be?

Just three? OK. One. Achieve a work/life bal­ance and stick to it as best you can. Ulti­mately though, except for crisis stuff, you’ll end up put­ting work first, so be pre­pared for that. 

Two. Trust your­self. You will make mis­takes, but gen­er­ally the decision to work for your­self won’t be one of them. Have the cour­age of your own con­vic­tions and just go for it! You will know when you are ready and have enough work or con­tacts to ensure you break even and can pay yourself. 

Three. Real­ise that you are not an expert at everything, so get people to help you. Get busi­ness advice, get to know your bank man­ager, and use an account­ant. When you are ser­i­ously busy, the last thing you’ll want to be doing is invoicing, or doing any­thing at all in Excel. 

Q. What’s the biggest mis­take you’ve made since you star­ted up?

Under-charging in the first few months. The tempta­tion from day one is to bring the work in and build up a cli­ent list. This kind of thing will not wreck your busi­ness, as you’ll simply put the extra hours in, but it is ser­i­ously det­ri­mental to your health and life­style, and even the qual­ity of the work you produce. 

Q. Where do you see your busi­ness in two years time?

Thriv­ing – you gotta be con­fid­ent, right? We’re lucky in that word of mouth and recom­mend­a­tions bring the work to us. We don’t take this for gran­ted and never will, but the hard work in our first year is pay­ing off, and we now have a solid found­a­tion to build upon. 

I never dreamed there’d be five of us within a year, and we hope to grow to about ten sol­diers in the next 24 months. When you work this hard, you have to remem­ber to be proud and enjoy what you do. 

[Finally, round­ing off with a couple of box­outs from the article]

TIMELINE: Six months to mak­ing the plunge

6 Months to go—Start build­ing a cus­tomer base. Trawl the freel­ance web­sites (job boards — authen­tic jobs etc) and get your­self a few freel­ance gigs. Register your busi­ness with the Inland Rev­enue. (see sec­tion on decid­ing what busi­ness you should be). I’m afraid for the next six months, you’ll be work­ing two jobs. If you can get fund­ing for your ven­ture, start research­ing what you can get and when. 

5 Months to go—Con­tinue to get those freel­ance gigs in. Begin to research a good local account­ant. Book an appoint­ment with sev­eral banks — you’ll need to get a busi­ness bank account — but it’s worth shop­ping around. Have meet­ings to dis­cuss fund­ing opportunities. 

4 Months to go—Found a good account­ant? Right, you need to have a meet­ing with him/her regard­ing your new ven­ture. Final­ise your bank account with your chosen bank. Con­tinue to build up your cus­tomer base. Now is the time to speak with some local com­pan­ies to see if they need freel­ance help. Are you going to be work­ing from home? If not, you need to start look­ing for some­where to work from.

3 Months to go—You should be get­ting some money in from your freel­ance gigs by now. Save it—you might need it in a few months. 

2 Months to go—You should be work­ing like a dog now and really look­ing for­ward to work­ing for your­self. At this stage, everything should pretty much be in place for you to make that smooth trans­ition from employed to self-employed. 

1 Month to go—Hand in your resig­na­tion. If pos­sible, try and get some work booked in for the first three months of being on your own. Make sure you also get paid by these cli­ents monthly so cash­flow isn’t an issue. 

Ten things I wish I’d known

10. Wear­ing many hats

Before I set up busi­ness, I’d read a fair few ‘how to’ books and a num­ber of blogs that talked about the many roles you would have to adopt whilst run­ning your new busi­ness. I still struggle with it. On a typ­ical day I am a designer, a pro­ject man­ager, a sales­man and a book-keeper. Each role requires a dif­fer­ent mind­set and it can be very dif­fi­cult to switch between them. 

9. Home is for home things

Keep work and home sep­ar­ate. When you work at home, this can be dif­fi­cult. When I had my work­place in my house, I made sure it was a com­pletely dif­fer­ent room which was fur­nished like an office—not just your spare room with a desk in it. One tip which worked for me: wear your shoes dur­ing the day, when you’re work­ing, and at night, take them off. It’s a silly little thing, but you will soon asso­ci­ate shoes with work. So, when you take them off, that’s home time. 

8. What goes around comes around

Be nice to people. Busi­ness doesn’t have to be unpleas­ant. Treat people how you expect to be treated. Be fair, pro­fes­sional and above all, polite. 

7. Don’t take on too much

This one is a killer. I still do it and prob­ably will for many years to come. When you don’t have any work booked in in three months time, the tend­ency is to get more work in now with the hope that, fin­an­cial, you’ll be more stable in the months you don’t have work. It makes sense, but you end up work­ing too hard. As a res­ult, qual­ity dips, cus­tom­ers get a bad ser­vice and, over time, your busi­ness will dry up. 

6. Hire some­body before you need to

I’ve recently had this prob­lem. I’ve been so busy recently that I needed help. After hir­ing someone, I real­ised I’d been in this pos­i­tion for too long. I needed help about three months before I thought I did.

5. Don’t under-charge

Work out your costs on an hourly, or daily, basis and then add 30%. It cov­ers costs and, until you get the hang of it, you’re prob­ably under-charging any­way. I was. 

4. Con­fid­ence

Remem­ber, you’re the expert. You’re not doing this job because you’re aver­age at it. If a cus­tomer wants to buy your product, or hire you, it’s because you’re good at what you do. 

3. Cus­tomer Service

If you’re a web designer or developer, unless you’re pro­du­cing and selling a product, you will be provid­ing a ser­vice. With a ser­vice comes Cus­tomer Ser­vice and, yes, cus­tom­ers are always right. 

2. Account­ing Software

I was using a homemade sys­tem coupled with an Excel spread­sheet for my account­ing needs. As the busi­ness grew, I needed some­thing a little robust. I wish I’d learnt Sage or some­thing sooner because now I don’t really have the time. 

1. Plan for tomorrow

I have three to-do lists. A Month list, a Three Month and a Six Month. Each list has a bunch of things I need to do for that time period. This allows me to have short, mid and long term goals. I class Six Month as long term here as, in this industry, I believe you need to be adapt­able and can’t really plan for more than six months in advance. 

Just the way I like it

As I said, this is just the way I set things up, and some of the many thoughts and con­clu­sions that I came to over the past couple of years of run­ning my own busi­ness. Hope it may help some of you think­ing of tak­ing the plunge.