Planning

Starting your own business

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Starting your own business requires some serious consideration

In the year prior to March 2011, the number of new start-up companies increased for a second consecutive year – up by 9.4% to 396,000,according to a source quoted in the Director of Finance online. This brings the number of new start-ups to the highest level since before the credit crunch, which is a positive sign for the UK economy. Despite an uncertain economic environment, it shows that entrepreneurs want to get on with business and are not afraid of a double-dip recession.

There are a number of benefits – as well as risks – that comes along with owning your own business. It's up to you, the entrepreneur, to decide whether the pros outweigh the cons:

In the year prior to March 2011, the number of new start-up companies increased for a second consecutive year – up by 9.4% to 396,000.

The benefits

  1. Have the potential to earn more money. Instead of having a fixed monthly wage, your income is dependent on the performance of your own business. So the more successfully it is, the more you could earn.
  2. Enjoy the freedom of being your own boss. Choosing your own projects and doing what you are passionate about can be hugely rewarding.
  3. Choose your hours of work. You benefit directly from any extra hours you put into your business. By working flexible hours you are more in control of your own work-life balance.
  4. Take charge of your future. Working for someone else makes you vulnerable to redundancy, closures or mergers.
  5. Potentially work from home. Depending on your business, you could benefit from no travel time, no transport costs, less stress and the tax benefits of making a portion of your household expenses tax deductible.
  6. No more office politics. Free yourself from the stresses of the conventional workplace including set targets and attending, meetings.
  7. Receive extra tax benefits. Any expense incurred setting up and running your own business is tax deductible.

The risks

  1. No income guarantee. Competition, economic fluctuations, changing tastes and personal illness all impact on the income you may receive from your business.
  2. Initial salary cut and support. When you start out, you may not be making as much as your salary – and you may not be earning anything at all for a while. In order to pay your day-to-day living expenses, you might need to support yourself with savings or in another way until your business starts generating income.
  3. Longer hours. The hours you work will often be dictated by your customers and clients and at times the hours you work may increase dramatically.
  4. More admin. Working for yourself means being responsible for the day-to-day running of your business, including tasks you may not enjoy.
  5. Rent and overheads. If you cannot work from home and need to work out of other premises, you'll have to pay rent and other overheads.
  6. Increased stress. Running your own business can increase your stress if there are unforeseen expenses and problems. You are ultimately responsible for your success.
  7. Managing your own tax. To obtain tax benefits, you usually need to pay out money first – and pay an accountant. You'll also have to make your own pension and health insurance arrangements.

There are definitely many pros and cons to consider when starting up your own business. Whether you're prepared to take the required risks to get the potential benefits is up to you – and your attitude towards risk.

Another important consideration is how best to fund your business – as this will affect the amount of risk involved. You'll need to consider the following questions carefully:

  • How much will it cost to get running?
  • How long before you estimate you can start earning an income from it?
  • How easy will it be for you to get the finance you require?
  • How will you finance your business? Options include savings, an overdraft or banking loans such as invoice finance.
  • What other help might be available such as Business Angels, Grants, Government support or agencies?

For more advice on how to get the finance for your start up, have a look at our guide to business borrowing. This guide is designed to help you prepare yourself so you're more likely to get the finance you need - whether that's to start your business here in the UK or in markets overseas.

Our financial advisers are also available to answer any questions you may have. With their global expertise and local knowledge, they can help you achieve your business ambitions.

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Everyone's circumstances are different and what applies to one person may not be right for someone else. The suggestions above are based on a general assumption of each circumstance and they are not intended to provide advice or recommendation.