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