What Do I Want the Business to Be?
There are basically three types of business: sole trader, partnership and limited company.
Sole Trader Most independents start out as a sole trader, which is the simplest form of business structure. Registering the business and, if relevant, obtaining licences is relatively inexpensive. The sole trader has complete control of finances and can decide when and how much to take out of or put into the business. Unlike other business structures there is little government control and there are no reports to be filed with government agencies or departments. The business and the sole trader are taxed as a single entity, i.e. the business-generated income is equivalent to the salary.
There is a major risk as a sole trader: personal assets, house, property, car, investments or other valuables can be seized to pay outstanding debts and other liabilities.
Partnership A partnership is an association of two or more people to carry on a business with the aim of making a profit. To enter in to a partnership you need a contract – oral or written – between all interested parties. The fees and legal expenses are lower than for an incorporated company but higher than for a sole trader. Being in partnership means sharing all decisions, profits and unlimited liabilities of the partnership.
Changes in circumstances automatically end the legal identity of the partnership, for example the death of a partner.
A partnership agreement, sometimes referred to as articles of part- nership, is essential. The larger the partnership becomes the more com- plex the agreement. When more than one person is making decisions you need consensus management. A dependence on consensus man- agement can lead to difficulties and result in partnership conflict. At the risk of sounding pessimistic:
A friendship founded on business is better than a business founded on friendship (John D. Rockefeller, 1874–1960; see Gray 1996).
Dissolving a partnership can result in expenditure of time and legal and administrative costs, as all partners need to agree the terms, which can result in trading difficulties. For example, the withdrawal of cap- ital at termination of a partnership can result in the business being insolvent.
Limited Company A limited company is a legal entity, with or with- out share capital, which can be legally established by one or more in- dividuals. The shareholders’ (or owners’) personal assets are separate from the business and cannot be seized to pay outstanding debts in- curred by the business.
It should be noted that there are various tax advantages available to limited companies that are not available to partnerships or sole traders.
However, expert advice before making the decision is essential. Tax planning and annual returns will need to be undertaken with the help of a professional and qualified accountant. The selection of an accoun- tant must be undertaken with care and a decision based on personal recommendation is advised.
Investors find it more attractive to invest in a company with limited liability than to invest in a business whose unlimited liability could involve them in financial responsibility that is greater than the amount of the investment. Long-term financing from lending institutions is more readily available because lenders may use both corporate assets and personal guarantees as security.
The limited company continues to exist and operate regardless of any changes in the shareholders. For example, the death of a shareholder does not mean the termination of the company.
There are more regulations affecting a limited company than a sole trader or partnership. Companies must report to all levels of govern- ment. As can be predicted, it is more expensive to establish and operate a limited company than to operate as a sole trader or in a partnership, because of the additional documents and forms that are required.
In general, it is probably better in tax terms to start a small business as a sole trader or partnership. Once the business is mature and profitable, professional advice may be sought and the needs and implications of becoming incorporated can be researched. This delay ensures a better chance of making an informed decision from an experience base and with some indicators of profit and growth potential.
The choice between setting up as a sole trader or as a partnership is largely dependent on individual preferences and circumstances. Con- sultants who start as sole practitioners may, when they are established, form a partnership with one or more congenial people. In the final analysis professional advice is required when setting up independent practice.
What Do I Want to Offer?
A key point when starting out as a self-employed person is to decide what services are to be offered to clients and whether the services can be offered within current resources. The range of options is varied and will depend on past experience and the type of work enjoyed.
The work of the independent occupational health nurse practitioner seems to break down into several categories. The most popular is provid- ing an independent occupational health nursing service, usually on a set number of days per week or month to a client or clients who contract for the service. The work often entails pre-employment and ongoing health surveillance programmes, training and, in some instances, a treatment service. Another area of independent practice is consultancy, working with senior managers to design strategies, policies and procedures and then managing the implementation of the agreed work. Both elements can be incorporated into a contract for services but the latter offers a greater opportunity to influence the client at a senior level and requires a range of management skills.
Some independent occupational health nurses may have a contract to provide full-time services, which seems to follow a company down- sizing or rightsizing. This type of contract ensures a sustained income but the benefits and security of continued employment are often less ad- vantageous for the independent than for someone directly employed.
Remember, if the contract is not renewed then the independent prac- titioner is unemployed and has to start finding new clients. If self- employment is really a preferred choice, the pros and cons of being tied down to one client should be considered carefully – a single contract may be too high a risk.
What Do I Need?
An Office and Space A major decision is whether the office will be in the home or in rented accommodation. Both have their pitfalls and both need to be well thought out.
To work from home has many advantages, such as no travel and tax relief for a room used as an office. However, working from home needs discipline – office hours are office hours. Ideally the office should be a separate room with desk, shelves for reference books, filing cabi- nets, computer with broadband Internet access, printer, telephone and fax/copier.
To rent accommodation means the need for regular income to offset overheads before making a profit. But the rented office will not intrude on private space. In the end it is a matter of choice and may be based on projected fee earning. Therefore, another essential is capital to set up a functioning and efficient office.
Administrative Support This is another overhead, which would need to be covered on a regular basis before a profit could be identified.
The appointment of an administrative support worker will depend on the type of services to be offered and the independent’s computer skills.
In consultancy the need is more apparent as there is usually a volume of written communications. The decision may be based on some or all of the following:
r What is the role of the administrative support worker?
r How much time is spent by the income generator on routine admin- istration, e.g. accounts, invoicing, chasing payment, writing reports, chasing clients, marketing, etc.?
r Could this freed time be used to generate more income?
r Is the independent paid for report-writing time?
r How much of the report writing could be done by a third party?
r Is it nice to have or essential?
r Would it enhance the image of the business?
Computers Buying the best within budget and with lots of memory will help avoid the need to upgrade later. Whatever you think you will need, you should get a system that will do more. Deciding which com- puter and what programs to buy will depend on your projected needs:
this is not as simple as it sounds so it is essential to do some market research. The best advice will be from someone doing the type of work being considered. But remember, everyone has their own favourite.
You should identify computer packages that can be upgraded and are flexible. Monitors are important; the bigger they are, the easier they are to use. Of course, all independents will complete their display screen equipment risk assessments and ensure compliance, which is easier to
achieve at the set-up stage. Ensure the programs are user-friendly and buy a virus and computer systems checking programme.
As the independent will need to prepare reports, and the reports are a window to the business, a colour printer and a good graphics package are serious considerations.
Seek advice from several Internet suppliers and consider a system, ideally broadband, that best suits your needs. This can be part of a mobile and TV package – dial-up can be used in areas where it is hard to get broadband.
There are some very user-friendly computer accounts packages on the market. Accounts are essential for invoicing clients, for keeping a record of the transacted business and National Insurance, and for the accountant to prepare tax returns. The accounts packages will also cal- culate VAT and assist in completing the VAT forms. The paperless office is a laudable objective that is not as easy to achieve as to talk about.
Keeping client files and copies of reports is essential for reference and in case of complaints. External hard or flash (usually USB) disks have fallen rapidly in price and provide a good method for backing up the internal drive. Users can use synchronisation software packages to facilitate back ups with the same file structure as the internal drive, but if a good filing system is used it is easy to back up from the root directory.
This requires an understood and consistent system for directories, folders and files: for example, a directory may be labelled ‘Clients’, and each folder constitute a named client, and within the folder the essential files are placed. Retrieving files can be a nightmare, so consistent titling of files going into the appropriate folder in the right directory can be a time saver. From experience, dating the files – for example 00.11.03 letter to Jane Doe re interviewdoc – tells you a lot, and the computer will show all files by date sequence.
References Good up-to-date and varied references are essential for the independent. You will need the latest editions of textbooks, subscrip- tions to the best occupational health journals and broadband Internet access for e-mail communications, research, receipt of e-bulletins and so on. The risks of making recommendations based on outdated informa- tion are real and can result in clients taking action for loss of or detriment to business. The purchase of data is a tax-deductible item, as are office equipment and consumables such as paper, folders, pens and so on.