Setting Up

You've got a client, there's work they want you to do, you want to go do it. You're in business!
But of course you'll also need a basic business setup, and you may well need it soon.

Here's roughly what you may need to get done, and in what order, with a few tips to smooth the road.
This is specific to the UK unfortunately, but I suspect will be fairly typical. In any case, I have not tried to research and double-check all of this and it was quite some time ago, so check it yourself as you go.

As an aside, bear in mind that when you ask small-scale business contacts for advice, they will see "very small business" and not give much credence to the international complications you may incur.

Can I Get Started Yet?

If you find yourself with work offered to start right now and you are personally ready, but you haven't got your company set up yet, my advice is don't wait, get started. Don't pass up an opportunity just because you've not the paperwork organised. Don't even make the client wait, unless you're very confident they will. That general principle has served me well I think.

Also, for me there was a feeling of fragile momentum: if I didn't take advantage of the opportunities that  I had prepared the ground for, I might be passed by and there might not be others. If you find yourself without work for a couple of months early on, you might well lose confidence and tend towards less ambitious paths.

However, be aware that you'll need to sort out your setup ASAP, while you're doing the work!

Registering a Limited Company

You don't necessarily need a limited company and you can just operate as a sole trader, but I did not research the latter seriously. My understanding is that a sole trader is a more or less automatic status provided so that very small scale, simple businesses can be formalised and pay tax with the absolute minimum of paperwork. There are tax advantages to being a limited company, but actually I went that way primarily because I thought my customers would expect it and it would lend me a little more credibility. If you prefer to keep things simple and don't have immediate grand ambitions, sole trader might be best for you, but here I'll assume you plan to set up a limited company.

I started work on a two week contract and formed the company at the end of the second week. I recall there was a short period after doing trading that you could count it as work under a company that had not yet been formed at the time, but I don't have a reference for you there.

I can at least say that the date that HMRC (the UK tax organisation) cares about is the "time of supply" which then usually forms the tax point. This tends to be the last day of work done. They don't collect information about the time the work started, so if you form your company - as I did - by the last day of work, you should be ok.

If you have decided on an accountant, you can ask them to set it up for you and be sure it'll all correct. However, you can also form it online through companies house, which is cheaper and helpful if you haven't chosen an accountant yet. The only difficulty there is knowing that it's really ok to accept the various default options. I won't give specific advice, but I did it this way recently with some advice and there don't really seem to be any gotchas.

Choosing an Accountant

You won't need an accountant immediately, but once you start trading you'll need one pretty soon, first to advise you on small matters and then to help with your first bookkeeping and VAT returns.

I'd say that there are roughly three classes of accountant, for our purposes. Prices below assume a single-person limited company and are obviously just a rough idea for the UK, in 2013. They exclude VAT - you'll soon get used to that.

• Budget local firms
• Offer low prices - order of £800/year - more about tight margins than really working for you, may not be chartered
• High-end local firms
• The standard option - perhaps £1100/year - should give you a thorough grounding in what you need to know early on, will be chartered and should give sound advice
• Smaller regional or national firms
• Our high-end option - perhaps £1500/year if you negotiate - by having a much larger total staff, should be able to offer more specialist advice through direct experience, for instance regarding international matters

The fourth class is the largest national firms, known in the UK as the "big four". Those companies are most interested in companies like Microsoft - as someone put it to me, why would they care about you? 

There are also some accounting firms that are based online rather than having a local presence. I can't speak for those, I haven't tried them. I can say that when you're starting and when you have to arrange more complicated things - like shareholder agreements - bring able to sit and talk in the same room is very helpful.

In each of these, the thing we're looking for is an annual quote for forming the end-of-year accounts, doing payroll records and doing your self-assessment tax return. It should also include a reasonable amount of advice and it's worth talking about what advice would be covered, even if you aren't likely to fully understand what advice you might need as yet. It should be agreed in advance as a fixed fee, to be renegotiated later in advance if things change.

When I was first looking at accountants, everyone told me "it doesn't matter, just get an accountant" (which I don't agree with) and a few people did tell me "make sure they are chartered" (which I do). Do go and visit them for a free chat, and don't be afraid to follow up as much as required and negotiate with them.

Only consider going for a budget firm if you really expect your turnover to be very small and so margins are really important - and by very small, I mean you're doing a little contract work, mostly in your own country and backpacking the rest of the year. Part of the thinking behind that is that if you're small enough, nobody really cares that much - you're very unlikely to be audited, you could cope with a tax mistake from savings, etc. How do you know they are budget? They are offering a lower quote than others, they don't have expensive cars outside, they may no have "chartered" in their name.

High-end local firms are likely your best starting point. They are chartered, they charge a bit more, they offer some training in their favoured bookkeeping package, they should be experienced with a bunch of bigger clients than you and do a decent job looking up anything unusual you need. Within these, there will still be variation. 

The key thing for our purposes is the international consultant angle. Do they have other clients who travel to Europe, the US, etc, and sell IT services onsite? (I.e., itinerant programmers, the target audience of this blog!) Services have different rules to selling products, and when it's international, these rules are more complex, a little different for each economic area and with different paperwork. As a general rule, I only really expect someone to do something correctly if they've done it a bunch of times before, and they'll certainly be quicker with the advice. It may well be hard to find an accountant with exactly this kind of client, but it's a good area to discuss.

I have also heard just one or two hearty recommendations of "I changed to this person and she actually saved me money!" It's possible to lose sight of that - a good accountant may (given enough business to work with) be able to suggest some savings, at which point you'll feel very good about their fee.

Finally, if you get on well with them and they are conveniently placed for you, those things will help every time you do something new and complex. However, as an itinerant, the "local" factor may be a lot less help. If you are going truly portable as I did and having no permanent base, there may be no single location that makes sense. Consider, in that case, getting a firm in a city with a large airport travel hub, even if they cost a little more, as you are likely to at least often pass by.

The third class of accountants - smaller regional or national firms - are likely overkill while you are a one person company. With hundreds of staff and a half dozen or more branches, with the minimal fees you should have negotiated, the reason they are giving you any time at all is the hope that your business will grow and become a valuable client. If you are still one person, without immediate ambition and perhaps intending to remain a "lifestyle" business, I think this is a poor fit of motivations. Having said that, you may grow later and might want to move to such a firm.

Changing accountant is a well-ordered process, where the new one requests "professional clearance" from the old. I worried that the transition would be hard work, but if you choose a sensible time (i.e. not immediately before annual returns are due!) and show the new accountants your current records and processes, they should be able to take care of most of it in a sensible timeframe.

Bookkeeping I will save for a future post. To be clear though, your books are the records of all financial activity, which you use to make your VAT returns, and your accountant uses as the basis of annual returns and so on. Your accountant can suggest bookkeepers, or you may keep your own. For now though, just keep all your receipts!

Getting a Bank Account

You only really need a bank account when you have to write an account number on an invoice! Anything else, if you hang onto the receipts (VAT ones please, more on that later...) you can claim as director's expenses later. So this could well be the last step in the your process.

I cannot yet recommend a small business bank. I went with Barclays - the biggest bank in the UK? and have not been impressed. I can give you some starting points for research.

First, what variation is there? Mostly, service. I had the idea of a bank manager who I could personally talk to, but for me that turned out to be a fiction. With an accountant, this doesn't matter much in any case, except that they would sometimes help you more effectively if they know you, and might be able to make a personal call on business loans etc.

So what really matters is their online and telephone services. When you call their business banking number, how effective is their service? If it is slow, it will be a terrible drain on your time. Are their call centres in the UK or abroad? The latter can be frustrating.

Hopefully, you can do 95% of your interactions on their website. However, I do a lot of transactions with currency accounts, rather than my native Sterling. For those, I have been promised a full online service is coming soon since I signed up, and in 2013 I'm still waiting.

My best advice is to ask your accountant for a recommendation and look for online reviews of business banking services, specifically looking out for mention of telephone and online service around currency accounts - which you may decide you wish you use.

Variation in fees also exist I presume - monthly charges, charges on international transfers, currency exchange rates - but these are probably less of a factor.

My Experience

So, what did I do for company formation, accountants, bank account first time around?

Accounting: I chose an unchartered, budget local accountants, and I regret it. So, why did I do that?

I talked to a high-end local firm, but in the end felt rushed by needing to form a company for the work contract I had started and wanting it to be done correctly by someone who knew the drill. I told myself that people had told me "any accountant will do" and I was worrying too much, and I was keen to save some money because I expected to only work a little that year, spending a lot of time on travel, vacation and some blue-sky projects. They did get votes of approval from two people I knew, but they were not solid business contacts. In fact I assumed they were chartered, and later realised they advertised no such thing. To be fair, spending over £1000 a year on accounting when you have very few solid plans to earn any money feels quite a leap.

In retrospect it was a mistake that caused me a lot of problems.

I wasn't given training in how to do the bookkeeping well, instead told that a simple spreadsheet was all that was required for such a small business. Over time though, as my business activities became more international, that spreadsheet got a bit baroque, and it also prevented me from having easy access to figures. It would have been better to start on a firmer footing.

A less professional accountant was later replaced by a better one as my point of contact, but he still lacked some experience with international aspects and didn't help me set up more concrete procedures as my business grew.

They were local to my parents home town and my parents promptly moved hundreds of miles away to retire. I never visited their office in the next 3 years, because I rarely passed by. However, I can say from that, that working by phone and email is quite effective for regular matters, and only really a problem when you need to make fundamental changes.

The key point is that you have to trust these experts around you. When trickier aspects have come up I have not had full confidence in their advice and procedures, so I have spent time on my own research and on simply worrying. That's a terrible cost.

Company formation: I believe I would have been better to form the company online, perhaps getting some free advice from an accountant on how to do that before actually signing up; then to choose a chartered accountant with international experience in a well-chosen location.

Bank account: I went with Barclays, which would seem a reasonable bet. I can say that their online service doesn't allow me to do anything with my euro and dollar currency accounts, but after four years of promises I can finally at least see the balance on those. That at least saves me 5 or 10 minute phone calls to a usually international call centre to see if money has come through yet from a client. Why so long? For one thing because of security checks, but also because I'm usually bounced through at least two people, one or both of whom will often keep me waiting because their computer systems aren't working very well at the moment. The international call centres are frustrating because they are so heavily drilled in their scripts that it's a little soul-destroying.

So in short, look out for those aspects, do some research, try someone who isn't Barclays.

For your entertainment, I'll also mention the bank manager. The reason I went with Barclays was because of the three business bank managers I spoke to in the high street, the young chap there was the only one who really took an interest in what I was doing in my business, and seemed to have a bunch of contacts who might even be helpful. I left with a feeling that he was a bizarre anomaly that I should probably take advantage of. He personally answered emails and a couple of phone calls as I was getting set up.

Apparently his boss must have decided he was a bizarre anomaly too though, because some weeks later when my emails or calls were not returned, I was finally told by a member of staff that he no longer worked for them. The look she gave me made it clear there was a story behind this. I think he'd been pursuing a mission of personal service completely at odds with company policy. I was given a new "bank manager", which turned out to be a call centre.

You know, writing this section, I really have to wonder why I consider myself a lucky individual! As you'll hear, my first year was really not easy - but all for reasons I think are quite easily avoided.

Work in Progress

In fact, I might have updates to make to the advice above in the next few months, because of things currently under way. We have just recently switched from the budget accountants to one of the larger firms outside of the "big four". So far my impression is that there's some cleanup to be done and some reorganisation and a bunch of issues to take care of that weren't properly on my radar. The extent of that will only be clear in a couple of months time.

We also have a more complex company structure, and formed a new company online recently with no trouble. I plan to try a new bank when and if it is required.

YMMV

February 2010: First Contracts

It really has been an entire year since I last posted! Following the retrospective format of this blog, I'm writing about February 2010 in October 2013, so you might be wondering what happening with me now and what held me up for a year. I've been very busy for some of that time and otherwise just keen to be thinking about something totally different from work! My life and the business have changed a lot in the last year - but four years after I started contracting, I haven't yet crashed and burned - quite the opposite in fact. I think that lends this blog a little more weight.

[Edit - when I first wrote this I missed that my trip to the US also took place in this month, which changes the sense of this quite a lot. Some changes now made to fix that]

When I left my regular job, I've mentioned that I negotiated a contract with them to keep working as an occasional contractor. The specific work that was first mentioned was a trip to visit one of their clients in the States. I remember this seeming to be delayed forever.

However, I had made a contact with another branch of the company in the UK. They wanted me too, and they had fewer obstacles to arranging it. Hence my first contract work at the start of February was in the north of England where I spent two weeks on-site with that team - the first of several visits.

 

While on-site, the US trip was confirmed on a couple of weeks notice. Because I had so few commitments, that was no problem. With nary-a-break but one week's preparation in-between, I flew off to San Francisco.

Choose your Clients

I still consider myself very lucky indeed with the clients who I have ended up working with. Actually, I suspect in hindsight that it is not really luck.

A few factors helped:

• A large initial network of contacts I knew well
• who helped me find work and who were a basis of trust in those new clients
• Optimism and perceived lack of constraints
• which encouraged me to take contracts I thought I'd enjoy when they came up,  rather than desperately chasing any work
• Willingness to base things on trust
• it's a lot easier than trying to ensure it with legal agreements
• Judgement of how far I could rely on someone
• However well-meaning someone is, they can only help you out in business while their interests align with yours. A sense of that, and how quickly it might change, really helps.

Even if those things helped, I do consider myself very fortunate in the clients I've worked with. If the first few had been different, perhaps I wouldn't have made it. Having said that, I am an optimist, and in fact you'll hear that I had a pretty hard time in my first year. I tend to see the silver lining in the few jobs that went badly, as much as I try to avoid repeating the mistakes - and perhaps that is a good recipe for success in itself.

You're not Special

These were formative and sensitive times, when my confidence was fragile and I often felt a bit of a fraud. Here I was, jaunting around and exploiting my knowledge and experience and being well paid for it, when really I was no better than anyone else in the daily grind. For that first contract in the UK office, it was all the more obvious to me because I was working within the same company I'd worked at for years. There were a lot of very talented people there and often I would look at the performance and feel inferior.

These thoughts and attitudes did at least help remind me to be humble about my perceived success - and that is very helpful if you want people to like you.

In 2012, a conversation with my mother made me realise that this kind of stance had served me well for a long time. At school, until I reached university, I tended to always be at the top of the class and I was not humble, but my ego was at least tempered by an acute sense of embarrassment - I didn't actually want my classmates to realise I was doing so well. This was probably key to my making such good friends during that time.

Your early contracts might well, like me, be in your original company, with people who already know you, and if you play it badly they may well resent you, which would be poisonous to your new career. You may be able to command better pay and privilege, but at this stage you skill set is likely to be very similar to others and your experience probably less. Many of them will realise that.

It may also help to remember that most of them would not choose your life. For one thing, they know where next month's paycheck is coming from.

First Experience

Given my relative lack of confidence, the team on this first, UK-based contract were really ideal.

The programmers themselves were extremely skilled and creative, and helped inspired me to look for clever solutions rather than accepting the mediocre. But they were also quiet, humble, friendly and simply nice. They were very glad of my specialist help and they made be feel welcome. The larger team welcomed me similarly. Instrumental at that time was that I was viewed as a conduit of knowledge from the main branch, a kindof proxy for that team. In a sense, some of my clients now still view me the same way.

The first two weeks on site were free of distractions; welcoming; different but familiar. I stayed in a nearby hotel - the first of many! - and walked into the office each morning - as I have always done since, in various cities. I socialised with the team over lunch and in the evenings I usually chilled out in the hotel with a film or a book, or went running.

I did go away for the weekend and visit friends in a nearby city for a night. That was fulfilling in itself - after being out of the UK for so long, friends being just a train journey away was a great pleasure.

Focus on your Client

While I was in the office, I focussed on the job, conscious that this could be a regular arrangement, or if it went poorly, the work would dry up. Let me emphasise that advice: on every single on-site visit, focus on the client.

You're there for a short time, you should be paid well for it, and one reason you can ask those rates is because you show a level of dedication and intensity above the salaried employees. I'm not saying you work longer hours - though sometimes that is required - and I'm not assuming they lack dedication. I mean that because you just drop in and drop out, you can see things afresh, put your whole mind to something and then afterwards take a break for a few days - which they cannot. You have the opportunity to shine for a short time - which is part of why they will hire you again.

However, you do have worries that they don't: such as arranging the next contract or following up on the last. My strong advice is not to allow yourself to be distracted by that or anything else while you are on-site. You'll hear more on that later.

Straight on to San Francisco!

When I first wrote this, I forgot just how hectic it had been. Straight after those first two weeks on-site in England, I traveled back to my parents place where I spent a week preparing for a second trip this time to San Francisco. When making contract proposals, always consider building in some paid preparation time: you will likely need to use it either way, it lets you hit the ground running, and it's quite possible the client will agree to it, then not find time to send you any prep material, making it easy money.

In this case, I was putting together tutorial material on my specialist area, building on the various material I'd gathered before leaving. Having this contract lined up meant I'd been perfectly justified in taking copies of a lot of my own notes and material. In fact, they even kept my old work email going for a long while afterwards, which was a searchable treasure-trove.

I didn't have a laptop or even a decent PC - I put a fairly low-spec one together for this work. In retrospect, a laptop would have been a great idea, but I didn't have time to decide on one. I did buy an iPhone - my first smartphone! In fact I'd never regularly used a phone until this point, and it was for business communication that I finally got a phone contract (expensed, of course).

The week on-site was pretty intense, with no time for sightseeing. I was joined by several people from the main office and we all had screwed up body-clocks, though the fairly luxurious hotel helped. Since we had all flown out for this, and I knew them all beforehand - indeed, was great friends with some! - I didn't feel the outsider at all, no different to anyone else.

I did get a first taste of presenting to clients, even if technically they were someone else's. My preparation was a good start, but the feedback reinforced to me the gaps in the product. In my old role, in principle I could address those, though I'd rarely be offered the time. In my new role it felt quite off-limits - though I strained to see improvements in it for a long time, all the same.

By the end of the week, we were exhausted but in high spirits, with an apparently happy client. The stress caught up with me and I found a thing or two to panic about. Then we were done.

I remember floating in the hotel basement jacuzzi, quite alone, feeling a perfect peace. It was one of the high moments of the year and a feeling I still try to return to.

My colleagues would fly back in just a day or two, but I could stay to enjoy San Francisco. Which is where we start the next, very different month.
 

YMMV