If you want to start a side business, the good news is that there are no legalities stopping you from doing so.
Whilst it can seem pressurising to run a business on the side whilst in full time employment, thousands of small business owners first successfully started their companies under the safety net of a full time job.
That does not mean the process is not without hurdles, however. Here we comprise all the ins and outs you need to know before taking the plunge and starting your own business whilst still employed.
Consider your time
Starting a business as an entrepreneur is time consuming and overwhelming, which can make it difficult to manage your work life balance. You will essentially never be switching off from work, at least to begin with, so make sure that you are equipped to be able to manage your time and productivity.
Managing a business on the side while working is no easy feat, but there are options available to you.
If you can carve out a routine, say working on your business for three mornings a week, and spending the rest of your working week dedicated to your full time employment, you could approach your employers about a flexible working arrangement.
Alternatively, if it is financially viable to you, you could request that your hours be shortened to part time.
The last thing you want is your full time employment productivity dropping and jeopardising your position, but likewise if your current job takes up too much of your time, your new business will never get off the ground.
Make sure that you are able to either find, or maintain a healthy balance that also doesn’t compromise your health, family and lifestyle.
As we mentioned above, to start a business you will need to carve out time to be able to dedicate toward your new business venture. To do this, like with any company, the best thing to do is start small.
When building a business while working full time however, it is advisable to keep your side business part time.
Not only does this allow you to adapt slowly to the many changes that come from being an entrepreneur, it is a sustainable business model for retaining both dependable income and full time working benefits.
Growing a business is a huge financial burden for any new business owner, and being in a full time job whilst starting this process gives the added advantage of not risking savings, or being unable to pay monthly bills.
Understand your employment contract
Whilst there are no legal limitations preventing you from starting a business while under a full time employer, your employment contract may have particular disclosures written into it that you need to be aware of.
If you develop intellectual property as part of your full time job, and your new self employed business will be developing the same products or using similar technologies, there may be conflict of interest disclosures and non-disclosure agreements that you must obey.
Additionally, if you have developed something for your own business using company resources and on company time, it becomes the intellectual property of the company which will land you bereft of your work, and in a serious contract breach.
Some businesses will also go as far as to include non compete clauses which prevent you from leaving to join a direct competitor, and that allow the company to take legal action against a business of your own creation that they perceive as a direct threat.
Ensure you have thoroughly read through each page of your contract as clauses such as the ones listed can make the process of starting your own business much more complicated, and that’s before there is the extra complexity of starting a business while working.
If possible, it’s also best to make sure that your new side business has no links to your current employer. If there are similarities however, you must be able to prove that the work, research and ideas are solely yours, and that they were developed independently, away from your current employment and its resources.
Talk with your employer
Whilst your employment contract may have disclosures, that doesn’t mean that you shouldn’t talk to your current employer and be as transparent as possible.
If your new business offers no direct competition to your current company, they may come to see you as either a collaborative partner, consumer or potential client. Any new small business needs a valuable network, and your current place of employment could be the best place to start.
Additionally, depending on your relationship with the business, your employer could be a potential investor to your startup, or have equity in a joint venture.
If your side business could offer a service to your day job that means they would become a client, partner or investor, make sure to consult independent legal advice so that you can proceed carefully and correctly before agreeing terms and conditions.
Save up your side income.
Once your side business starts making a profit, it could be tempting to get swept away in the benefits having two incomes can bring.
This will not be sustainable, and in the long run could harm your company if you were to leave your full time position as you may have depleted a fund which could sustain you.
From early on, set yourself budgetary guidelines that will prevent you from spending beyond your initial means. Choosing to invest or save your profits will help ease your stress when you do become fully self employed by providing a safety net for the future.
Take care of taxes
When you start a business, whether you choose to become a sole trader or limited company, HMRC must be informed. This is because legal paperwork such as your Self Assessment Form for your tax return can be submitted, and tax generated from any income you earn can be recorded and paid.
HMRC will also want to assess your business’s intent in order to know whether or not to apply a Badge of Trade. A Badge of Trade is given if HMRC deems a business is being operated in whatever capacity. Factors that make up this decision can include the frequency of transactions, and whether they are regular and business-like in appearance.
This means if your business receives payment, whether for a completed job, or something as small as an advertisement, you will be deemed a business in the eyes of the law so it’s vital to get yourself registered and avoid consequences.
Know when to make the switch
Once your business is established and there is a clear demand for your products or services, plus your business is making a steady profit – it’s time to take the leap into self employment.
The first step to transition your business from its humble beginnings as a side business to a full blown legitimate company is to register with HMRC within three months of your business’ official start date, starting from when you leave your full time job and go solo.
Limited companies have limited liability, which separates your personal assets from those of the company, protecting them in the event of things going wrong. Meanwhile if you choose to set up as a sole trader, you require less startup capital to do so and the entirety of the profits made from the business go to you.
If you choose to set up as a limited company, you must also register your business with Companies House in an application process.
At iFinance department, we can offer free impartial advice on the best next steps for your side business to take, and can recommend the exact company formation we think would be best suited for your requirements. We’re expert accountants and bookkeepers that will help launch your business, so drop us a line today!