Help Setting up your own business

[russell]

Mr Russell is a mechanic(for over 20 years) he hates his day job and does lots of private work. He is tetering on the edge of setting up and going on his own.

Yes I know its a risk, but if he doesn't do it now, he will always look back and wish he had at least tried.

He is good, and well respected in all areas of mechanics and he has a solid circle of regulars and contacts.

The time seems ripe, as he has a friend who can give him 3 days work whilst he builds his own work up.

Opinions please Freddies, all advice welcome

 

[Preatoria]

You got 3 days work every week for the first couple of months ?
I would say GO for it. If you already have a lot of contacts that are happy with you and that recommend you to others i would certainly go for it.

You have got several advantages in my opinion:
1. You have work (3days / week) for the first months
2. You have contacts/clients already
3. You have lot's of experience

Especially the first 2 are a good thing to have.

If indeed the first one is the case i would say GO.

 

[Marc]

Will the 3 days work which is guaranteed be enough money to add to the household income for you both to live off in the short term? Is this 3 days work guaranteed for a reasonable period of time?

Equipment. Can you afford to purchase/lease the equipment or rent a workshop off someone?

Its also worth baring in mind that, the motor repair industry as a whole is struggling and its the mechanics at the bottom end who are doing well, ie, the cheap ones.

The only real advice I can give is if you can survive financially if it goes tits up then go for it but I certainly wouldnt go for it if its just a case of him wondering "what if"

 

[rynnor]

Whats the deal with Business rates in your area? Some places dont charge you in the first year - worth finding out as these can be steep.

I'd buy yourself a pre-made Limited Company from one of the internet suppliers (around £50 depending on what extras you go for).

Oh and get yourself some hanging files, ledger books etc. and record everything you spend (including all the set up costs) and file all your receipts weekly or monthly.

Will make your accounts a lot easier (and cost less if you get an accountant in).

 

[Marc]

I'd buy yourself a pre-made Limited Company from one of the internet suppliers (around £50 depending on what extras you go for).

Totally depends on circumstances and is in no way something they should definitely be doing.

 

[Gumbo]

Find your local Business Link Rep who, if they're any good, will be able to give you masses of advice and information. There may well be grants available or loans at good rates which they can point you in the direction of.

I imagine if he's been in the trade for 20+ years he'll already have a mass of Snap On to work with. Do you have workshop space at home at all? Or will he have to rent a space? Your local council may have small units which they let at much better rates than proper commercial ones, so they'd be worth a go. Don't forget to budget for Public Liability Insurance and traders insurance so that he can drive clients cars. That could be a few £k right there.

I worked in the motor trade for 12 years in all positions from a boy selling parts, through the garage side (dirty hands, admin and management) and back to wholesale selling of parts so have experience of the industry from all angles. The one man band types make a good living, but are never going to be massively wealthy from it. You need a real core of good loyal customers and as vehicle sophistication is advancing, a good list of contacts for contracting out some jobs, or heavy investment in shiny boxes to understand things.

I run my own boatyard now, but just before the credit crunch hit, was on the verge of setting up a second business doing specialist garage work, to the point of looking at premises and talking money with my bank manager.

If I can offer a bit of advice I learnt in the motor trade, it's to focus on margin. no matter what, pay as little as you can for everything, and get in as much as you can for everything. It's the only way to make money. Be honest with your customers, but don't be afraid to sell to them. When you service their car, don't just do Oil, Air and Plugs. Make sure you sell a pollen filter too. Point out the end of life wiper blades. Get the techbooks that tell you min thicknesses of brake discs and record them on a service sheet, then give the customer the info so that you will hopefully pick up the replacement. It's too easy to see yourself as the friendly one man, not hard sell alternative to the big boys, but if you don't sell you won't survive.

Sorry for the long post. I'll be happy to help with any more specifics if I can.

 

[tierk]

If I can offer a bit of advice I learnt in the motor trade, it's to focus on margin. no matter what, pay as little as you can for everything, and get in as much as you can for everything. It's the only way to make money.

QFT.

Other things to note.

1. Work out a business plan - amazing how many people try setting up and don't do this step. Try and include every sort of expense, even stuff that sounds really unlikely as this is a worst case scenario and anything you don't use will have a positive effect on your figures.

2. Speak with all the banks about setting up accounts you would be suprised at what they can give and the rates, shop around. Don't just look in one place and be very sure that the bank you do choose has a good understanding of what you want and what you need.

3. When i last did this for my brother in London (setting up his blacksmiths forge) i spoke with people at the DTI (not sure what they called now). Can give great advice about grants and help that is available.

4. Don't count on anyone (friends relatives etc) to insure work because in 90% of cases it is only just talk.

5. Be prepared to work the most ungodly hours for the first 6-12 months as that is the critical phase (setup). When we setup or company here in Qatar the first 12 months were hell i was working over 16 hours per day but we are still seeing the benefit of this today.

6. Make sure you have a really good accountant - this is another step people dont seem to take into consideration, a good accountant will show you ways to save money that you would never think about. If it costs a little extra for a good accountant pay it its worth it in the long run.

7. Last but not least GO For It without any fear or worries about it not working. Be positive this will reflect in your dealings with clients, banks, suppliers etc.

 

[old.Tohtori]

He is good, and well respected in all areas of mechanics and he has a solid circle of regulars and contacts.

Dunno if Rusrus has me on ignore, but Mr Rus should check that those regulars and contacts are viable after switching a place.

Sometimes contacs stay also because of the company and regulars are just people who've always "come there", even before Mr Rus.

 

[Chilly]

If it all goes titsup it's fine, ltd companies cant take your personal assets down with you, normally.

 

[Cadelin]

Just a couple of tiny bits of advice.

Lets look into the worst case scenario. If the company doesn't make a profit and you have to close down, you have lost some start up costs but he is still a qualified mechanic and should be able to find a job, people will always need cars fixing. That's not too bad.

However there are two possible things that can screw you completely.

Make sure you have sufficient insurance. If he hurts his back etc he might not be able to work again but if he owns the business its his responsibility.

Don't under-estimate the amount of time that will need to be spent on paper work. Meeting Health and Safety regulations and having sufficiently detailed paper work for your accounting is vital. Companies do randomly get investigated, and the fines can be huge if you are caught out.

Good luck!

 

[rynnor]

If it all goes titsup it's fine, ltd companies cant take your personal assets down with you, normally.

Yeah thats pretty much my point - if you go the sole trader route you can literally lose everything you own if things go wrong.

I cant really see why anyone wouldnt go the limited company route really - if things dont work out you can close it or just make it dormant and there are various tax benefits.

 

[MYstIC G]

There's also now the LLP option in some instances which can be preferable to LTD to certain areas (fuckloads of Solicitors we work with are now LLP).

Gumbo is spot on here however, speak to business link, that's what they're there for so get your moneys worth out of them.

The second is to do the math, really carefully do the math. If you miss off things you're going to have to pay for, i.e. as already mentioned insurance, you could undo all your work.

Third, as far as banks go, get the best deal that you can but remember, banks exist to make money. If you find two deals the same, pick the business account manager that you believe will invest time and trouble in dealing with you and will stick around. Banks can fuck you over in a heartbeat and having a business account manager that stays put and will help you with your problems is worth a fuckload more than the 0.00000001% difference in interest costs.

 

[Scouse]

My advice. Chill. It's a doddle and great fun!

Nobody to take orders from except yourself! There's no substitute for being your own boss.

Have a long chat with a decent accountant so you really understand what your tax obligations are but after that just hard work and fun!

 

[dysfunction]

A company is a buffer against being liable for debts but it's certainly not a guarantee! Especially these days.

If you are the company Director you can still face legal proceedings against you by a client or customer or if you have gone bankrupt legal proceedings by a liquidator, receiver or administrator for the losses the company makes.

Having a company there are other things to consider as well:
Limited company director responsibilities

So you may wish to stay as an individual to keep complications and costs down.

 

[Tom]

Being a ltd company is a pain in the arse. Far too much paperwork. I've stuck to being a sole trader, its much simpler.

 

[rynnor]

If you are the company Director you can still face legal proceedings against you by a client or customer or if you have gone bankrupt legal proceedings by a liquidator, receiver or administrator for the losses the company makes.

Its pretty hard to become liable as a director and I'm not sure about your reference to bankruptcy since that applies to individuals not companies.

I dont really understand what you guys are afraid of, I've been running my own limited company for years and although there is some paperwork its a doddle as long as you file all your receipts regularly?

Even the VAT forms are easy and with a Limited company greatly reduce your own income tax liability - whats not to like?

 

[Vae]

A director of a company is only likely to be facing legal proceedings if they have committed fraud or continued to trade while insolvent. And even then this is only really a threat for larger companies.

 

[milou]

The issue of lifting the veil of incorporation is only like to become one if your company faces formal insolvency proceedings such as liquidation. There are a variety of legal gateways to make you personally liable for corporate debt after insolvency and of course, if you've spent too much on the chocolate Hobnobs, you might face disqualification as a director and the associated costs.

However, and keeping confident(!), if your company is successful, you may be asked to sign a personal guarantee for corporate borrowings e.g. from a bank, as that way you are showing the bank a sign of faith in your entrepreneurial activities, or from a local authority for business rates.

 

[Edmond]

A director of a company is only likely to be facing legal proceedings if they have committed fraud or continued to trade while insolvent. And even then this is only really a threat for larger companies.

Also Natwest make me personally responsible for my buisness overdraught if i cant pay it back

 

[rynnor]

Also Natwest make me personally responsible for my buisness overdraught if i cant pay it back

You mean you signed something to that effect?

 

[Gumbo]

Yep, personal guarantees are pretty common nowadays, even for a Ltd company. It's really a case of guarantee it personally, or you won't get the money. When I took the yard on it had debts of about £80k and I had to sign to say that I would personally guarantee that debt, although in reality if we went under there should have been enough assets to pay that off. We're down to £22k borrowings now in about 3 and a half years, and on target to have that paid off in another 1.5. Then we will be that rare thing. A debt free business!

 

[Edmond]

You mean you signed something to that effect?

Yep, had to or we didnt get it

 

[dysfunction]

Its pretty hard to become liable as a director and I'm not sure about your reference to bankruptcy since that applies to individuals not companies.

I dont really understand what you guys are afraid of,'ve been running my own limited company for years and although there is some paperwork its a doddle as long as you file all your receipts regularly?

Even the VAT forms are easy and with a Limited company greatly reduce your own income tax liability - whats not to like?

OK insolvency beyond the ability to carry on trading then......I'm not afraid. I'm just pointing out the fact that a company doesn't necessarily protect you from being liable for company debts!

It's not a magic token to indemnify you from liability...that's all.

For some people paperwork isn't easy to get on top of. I've seen loads of people getting into a huge muddle with it and then spending a fortune on an accountant to sort it all out....

 

[russell]

Thanks for all your great advice guys.
He is handing his notice in tomorrow. EEEEK.