5 essential tips for starting a trade business

by | Aug 26, 2022 | Business, Trades and Construction

It’s easy to see why many tradespeople decide to set up their own business. You can be your own boss, putting your skills in your trade to good use and making independent decisions about the way you work.

Plus, you’ve got the opportunity to grow your business into something bigger, beyond yourself alone.

At the same time, though, it comes with extra responsibilities – and if things go wrong, it’s your finances at risk.

Whatever trade you’re in, there are a few things to keep in mind. Here are our five top tips.

1. Understand the construction industry scheme

The construction industry scheme (CIS) is a tax scheme that applies to contractors and subcontractors in the construction industry.

If you’re a contractor, you’ll need to register for this and deduct money from your subcontractors’ payments, and pass these on to HMRC.

It’s not the simplest scheme to get your head around, and you’ll need to make sure you understand which category you come under, the types of construction work it applies to, and how to operate the scheme.

Getting expert advice and choosing CIS-compatible software can help.

2. Get organised

Before you do anything in your new business, it’s essential to get the right admin and organisational systems in place and make sure you’re keeping thorough records.

For instance, you’ll find it incredibly hard to make informed decisions about your business without accurate bookkeeping. And if you fall behind on your statutory record-keeping, you’re putting yourself at risk of serious penalties from HMRC.

Again, software is a great solution to save you time while managing your compliance obligations. Cloud accounting and bookkeeping software streamlines the process, automatically pulling through your data from bank feeds so you don’t have to spend too much time on your books.

3. Image is important

It might not seem like the most important part of your business, but a professional image can make all the difference in inspiring trust among potential customers and setting you apart from other tradespeople.

Small things like turning up on time, invoicing quickly and clearly, and maintaining consistent branding on your van, your website, and any promotional materials you produce, can all add up to a more polished and credible image.

4. Don’t get caught out by poor cashflow

Keeping an eye on your cashflow from the start is important: even if you’ve got plenty of work coming in, you can still find yourself facing problems if you don’t have a steady balance of cash.

Taking deposits before you complete work is one way to maintain a stable income, so you’re not waiting until the end of a long project – and spending money on it – before you see any return.

Make it easy for your customers to pay you, with effective payment facilities.

5. Plan for tax

When you start running your own business for the first time, it’s easy to let tax slip to the back of your mind. If you were an employee before, income tax and National Insurance will have been taken from your pay through PAYE before you received it – now, it’s up to you to report and pay your tax to HMRC through a self-assessment return.

You’ll need to do this by 31 January after the end of each tax year. You may also need to pay in instalments, known as ‘payments on account’ in advance of the next tax year.

If you decide to run your business as a limited company, you’ll also have corporation tax to think about. And if your turnover goes over the threshold of £85,000, you’ll need to register for VAT.

Other taxes might apply to you, such as capital gains tax if you sell something that’s increased in value since you bought it.

We’d always recommend getting professional tax advice before you start your business – not just to make sure you’re meeting all your legal obligations but also to plan ahead and make sure you’re not overpaying.

At Mayflower Accountancy, we specialise in accounting advice for tradespeople, and can help you to set up your business, monitor your finances, and plan for your business goals.

Get in touch to find out more.

Ready to start the journey?

To get help with your accounts and start freeing up your time to focus on growth, talk to the Mayflower team today.

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