Checklists •
Becoming a sole trader
Setting up as a sole trader is an easy process. It is in fact probably the easiest form of business to set up. But by setting yourself up as a sole trader you will be faced with a number of advantages and disadvantages, including the responsibility of taking major decisions and the ultimate responsibility for your actions. Depending on your personality and circumstance, this experience can be either exhilarating and exciting or very stressful. You will be your own boss with nobody to tell you what to do; you will receive all of the profits and prize when things go well. However you will also be responsible for any errors of judgment or mistakes and you probably wont have anyone to bail you out if it all goes wrong. Your responsibilities as a sole trader extend to personal liability for any debts of the business. In extreme circumstances if the business fails you could stand to loose your personal possessions or even your home and could be declared bankrupt.
This checklist assumes that you are going to set up a new business and intend to operate as a sole trader.
The following checklist should be completed to ensure that you understand your responsibilities and liabilities. Done?
Look carefully at your personal goals. Ask yourself the following questions:-
Are you ready for the commitment and hard work that will be needed? Are you sure that you can cope with the pressure of taking the day to day responsibility for everything or even want to? Are your family and friends supportive? Have you thoroughly investigated what you are going to do and identified a genuine market for your products/services?
Prepare a business plan, which reflects your business goals and forecasts. Remember to include what you want to achieve and plan for doing so.
Identify the resources you will need and work out how much it will all cost. Include:-
Start up costs Any premises Any equipment Raw materials Support such as professional advisers Staff Transport
Look at your own personal financial position. Think about how you will manage your personal finances during the start up period when the business will probably not be generating sufficient income to pay your salary.
Identify sources of funding to help you get the business up and running and sustain it until income generated covers costs.
Decide on what aspects of the business you will be able to do yourself and identify areas that you need help.
Identify the type of help you will need and how much it will cost.
Inform the Inland Revenue that you are setting up. They will send you details about what you have to do. This will include how to go about registering for VAT if appropriate.
Decide what you are going to call your business. If you intend to use a name other than your own you should be aware that there are specific legal requirements relating to publishing your personal
details. You are legally obliged to put your own name and address on display at all your business premises and on all business correspondence including:
Invoices Letters Orders
Decide on the format of your company accounts. As a sole trader you are legally required to submit your trading details to the Inland Revenue. You are not however required to have audited accounts. You can submit your details with your personal tax return. Remember to retain all your records including receipts and invoices issued. This is a legal requirement and will also provide you with evidence in case of any dispute with the tax office in respect of your tax return or any claim you may wish to make.
Check if your chosen premises are suitable for the type of business you are intending to operate. This is very important especially if you intend to run your business from home as it could constitute a change in use of your premises which can lead to a whole range of complex facts. The local council planning office will be able to advise you regarding this matter.
Please note that the above checklist is not exhaustive and you may have other things to include which are specific and relevant to your own business.