It may be a risky gambit, but starting a new flooring business from scratch and growing it can be very rewarding. Adam Bernstein discusses the essentials.MASTER or mistress of one’s own destiny, able to determine in which direction it goes and answerable, in theory, to no one apart from God, family, and possibly the bank, can make being in business very satisfying.Of course, nothing in life worthwhile is easy, and setting up a business from scratch is no different. But with thought and planning it’s perfectly possible.So what are the key steps?

The vision
Before anything can be done there needs to be a vision for the business – how it’ll be structured, what it intends to do, and who it’s going to serve.Taking the first, structure, is it to be a sole trader where the owner is personally responsible for tax and liabilities, a partnership which is similar but run in league with others and potentially able to limit liabilities if set up as a LLP, or a limited company where the business is a separate legal entity responsible for its own tax and liabilities? All three structures can employ staff, however, while sole traders and partnerships can be privately run, LLPs and limited companies must publish certain information at Companies House.

There are, of course, plenty of other considerations when choosing the entity and this is where a good accountant will be worth their weight in gold as they’ll be able to offer guidance on the implications of each and obligations in terms of tax. Also, a good accountant can help draw up a business plan.As to how to choose an accountant, the key is to select a member of one of the six professional accounting bodies who will be both qualified and supervised in their activity. Worryingly, there is nothing in law to stop an individual from claiming to be either an accountant or a tax agent. For this reason alone finding an accountant through one of the professional bodies is essential. Overseen by the Financial Reporting Council, links to bodies are at https://bit.ly/3JwLFZw.

Business name is important but there are restrictions on names that can be used. It must be unique and cannot use any one of 130 sensitive names such as standards, trust, Windsor, British and England. It also cannot breach another’s trademark. There’s more detail on Companies House at https://bit.ly/3K15BmP.The business planThis is critical since it’ll outline what the firm will do, how it’ll serve clients, and radius of operation. It’ll also detail the services to be offered, the quality of products, scale of operation, as well as costs and revenue streams with projections on position over time. Without this basic data the business will have no sense of direction and no benchmarks with which to measure progress against.Thought needs to be given to demographics. Where, for example, are customers based? What’s the density of population and what are their likely needs? The plan needs to note if the firm is to offer domestic, commercial or will serve both, and it should discuss the local economy – how wealthy is it?

Consider too competition. There’s precious little point in opening up a firm in a small town if there are other contractors in close proximity. But there again, if a rival is a sole trader close to retirement, maybe there’s an opportunity to step in. Alternatively, a new business could distinguish itself from others by offering different services targeted at a given customer base, possibly on a national level.And what of pricing? Some look at others to see what they charge. This adds value in a world suffering high inflation where cost is an issue for many – especially in the world of contracting. However, it may lead to sales made at a loss or on tight margins. One answer is for bread-and-butter work to be on low margins but with more tailored or unique services charged on a more realistic basis.Then there’s the matter of premises. Where are they to be located? Is it new build or will conversion and refurbishment be needed? Will the business buy the freehold or take on premises leasehold and so rent? And if it’s the former, how will it be bought – own funds or through a commercial mortgage? What of size? A large building may offer scope to expand, but the cost of extra and potentially unneeded space may bankrupt the firm before it’s barely off the ground.

Equally though, a site that’s too small could be hamstrung by the need to expand but unable to move because it either cannot sell the property or, just as problematic, cannot break the lease that it’s entered into.Businesses need equipment so thought must be given to what is required and how often it will be used. Return on investment is important; it’s easy to get carried away with equipment only to be saddled with crippling monthly payments or tight working capital. Allied to this is the need to look at software needs to understand the best price and functionality combination.

Finance is central to success. There’s much to this subject, but in essence, while profit is the goal, only cash really can guarantee success for without it all operations cease – especially where main contractors can be slow to pay. So, while own funds can be deployed, borrowing – whether through bank loans or by using asset-based finance – could release cash for everyday operation with the cost set against profits.

Apart from the high street banks there’s the British Business Bank which offers loans to those looking to start a new business or to expand an existing business that has been trading for less than 36 months. Founders can each borrow between £500 and £25,000 over one to five years.Another option is to exchange equity, that is, shares in the business, for funding – just as entrepreneurs do on the BBC’s Dragons’ Den. There are other options in the form of invoice factoring and discounting where the firm receives an advance on its sales. Beyond this is the potential for public grants that may be tapped into. Unless the business is to run as a pure sole trade it’s going to need staff.

Obvious questions here are how many are needed, where will they come from, and how will they be paid? Beyond this, firms need to be aware of employment law. Pay is regulated and must not fall below the national minimum wage.

Employees also have a multitude of rights which begin from the moment a job is advertised and carries on beyond employment when references are given. Discrimination can be very expensive for an employer if an award is made against them, and employees after two years of service have the right not to be unfairly dismissed.And then there’s the matter of protecting the business from departing employees who may set up in competition and with the contractor’s own private information. This is a huge subject where good legal advice is necessary. Unlike accountants, lawyers are regulated and can be found via the Law Society at https://bit.ly/3IschbQ.

TaxThe law obligates new businesses to register with HMRC. Sole trader and partnerships need to register for self-assessment, while limited companies must register for Corporation Tax. Beyond that is VAT and PAYE (if there are employees). Tax regimes differ according to entity and there are a myriad of penalties for non-compliance – especially in the area of record keeping; not understanding obligations is no excuse.In summaryThere’s just so much to say about this subject including the not insignificant areas of health and safety, marketing, setting pay and benefits, cost control, cyber security and websites, and phone and broadband. Indeed, what’s been written here only just scratches the surface. But the fact that there are many good and thriving contractors around only proves that setting up another is a perfectly reasonable proposition.
Adam Bernstein is an independent columnist