Why consider…the trade sector?

The start-up costs are relatively low as primarily it’s your skills, labour and knowledge that you’re selling. You may already own much of the required equipment. Also, as you’re probably aware, there’s always a demand from householders and businesses for the type of services you can provide. Nevertheless, choosing to be self-employed is a big step, especially if you’re used to working for a company. There will be challenges along the way, but it could turn out to be one of the best decisions you ever make.

Types of Businesses

There are several ways to approach self-employment, although all of them will involve a greater level of responsibility and independence than working for someone else. Here are the main routes to self-employment:

Sole trading

This is the simplest and most common form of self-employment and is the option that many people choose initially. In terms of registering, all you need to do is to contact HMRC and inform them of the date that you began working for yourself. The only information you require before you call is your National Insurance number, although you will be asked for your address and telephone number. From this point on, you’ll be responsible for paying your own National Insurance (which can be done by direct debit) and, of course, running your own business.

Limited companies

In order to set up a limited (Ltd) company you must file paperwork with Companies House. This paperwork includes a Memorandum of Association and Articles of Association. Both of these forms can be obtained from the Companies House website. If you’re to set up a limited company, you’ll be a company director and the business will pay you a salary via the PAYE system. Limited companies also have to pay Corporation Tax, and must submit audited accounts to Companies House. Sometimes, sole traders set up limited companies when they wish to employ staff.

Partnerships

Partnerships can be established by self-employed people who want to work together on an enterprise, for example, an electrician and a plumber who wish to offer a more complete service to householders. The two partners will agree the terms of the partnership. Usually, such an agreement will be made with the help of a solicitor, including how it will be dissolved if necessary. Partners will normally share in the profits and losses, although investors can also be partners and may take the role of a 'sleeping partner' or 'limited partner'. In all cases, it’s best to make sure you’re clear about the role of all concerned and have thought it through before signing any agreement.

In brief

• The pros and cons
• The statistics
• Business planning
• Common pitfalls
• Money Matters
• Building your brand
• Qualifications
• How I did it
• Useful contacts

As with any business venture, the positives and negatives of going it alone will depend on personal as well as business matters. Here are a few points to consider if you’re thinking of becoming self-employed:

Pros

Your earnings are dictated by the amount of work you do and so – theoretically – the sky’s the limit.

• Greater independence and control You will be your own boss and will decide your own hours and methods of working, many people thrive when they gain such independence.
• Potential to earn more money Your earnings are dictated by the amount of work you do and so – theoretically – the sky’s the limit.
• Relatively low start-up costs Some tradespeople have little more than a toolbox when they first begin. But basics such as tools, telephone and transport can still sustain a decent business.

Cons

• Fluctuating costs Material and other associated costs, such as fuel, can impact on your profit margin.
• Exposure to economic conditions During tougher economic periods you may find that there’s less work available and your earnings may decrease.
• Responsibility for all problems Unlike salaried employment, you will have to deal with all the issues of the business, such as customer complaints, non-payment and administration.
• Rival may undercut your prices You’re unlikely to get every job you quote for and sometimes this is because a rival has made a cheaper offer.

During 2009, a survey by Ratedpeople.com found that demand for plumbers had grown by 46% in the past year and that the profession was the most in demand in the UK.

Self-employment is one of the most common forms of employment in the UK's private sector. According to official figures, at the start of 2008 there were over 4.7 million enterprises (excluding financial services) in the UK and 74% of them were composed of just one employee (the owner-manager or company director). Of these businesses about 25% – or roughly one million – offer services such as plumbing, building, electrics, carpentry and several other trades to either the public or to other companies. Of this group, referred to as construction in national statistics, the biggest single group (40%) are companies with just one employee or that are sole trading. In fact, 75% of businesses in this category are small businesses with between one and fifty employees.

Nevertheless, demand from consumers for people with trade skills is generally believed to be high. During 2009, a survey by Ratedpeople.com found that demand for plumbers had grown by 46% in the past year and that the profession was the most in demand in the UK. However, demand for other professions is also thought to be high and growing.

List all your start-up costs including everything from tools and overalls to business cards and insurance.

Put together a business plan to help you fully appreciate what you’re going to be doing. List all your start-up costs including everything from tools and overalls to business cards and insurance. Also, add up your running costs and research how much basic materials cost. You’ll probably be charging customers a mixture of hourly rate plus material costs for work. So, you’ll also need to research what the typical going rates are for people in your profession. You can do this by speaking to people in your industry or by contacting relevant trade bodies. By thinking about the costs of running your business you'll start to understand how much you can earn. You'll get a more accurate picture over time but by planning right now you'll be starting from a more informed position.

Marketing your services

Who are your customers? Are you going to do domestic trade, work for other companies or both? Whatever you choose, you need to think about your potential customers and how you’re going to appeal to them. Adverts in shops windows, flyers through letterboxes and general word of mouth are cheap and often effective ways of getting business. However, they might not be enough to sustain you, so you’re going to have to think bigger. Increasingly, people are looking online for tradespeople and so you must consider your online presence. This doesn't necessarily mean that you have to set up your own website straightaway. There are numerous third party websites where the public can find you online and request a quote from you. These same sites often give the customer the chance to leave feedback after the job has been completed. So, provided you do a satisfactory job, they’ll recommend you to many others via the internet.

Here are some common pitfalls to avoid when entering the trade sector:

Lack of cashflow is a common killer of small businesses.

• Expecting an easy life Running a business is hard work and you may have to work longer hours than you did previously. Some people fall into the trap of not spending enough time chasing business, planning or on the job itself.
• Cashflow problems Lack of cashflow is a common killer of small businesses. Good housekeeping, such as regular invoicing and keeping good records, are vital. It’s also sensible to discuss cashflow projections with your accountant.
• Poor pricing strategies Research what are the standard hourly rates for people in your profession and region. Also, keep up to date with pricings for materials, and factor in fuel costs. Your pricing should reflect a combination of labour and materials.

Be clear when quoting for work - When possible, give written quotes that spell out costs for labour and materials.

• Be clear when quoting for work When possible, give written quotes that spell out costs for labour and materials.
• Research your suppliers Getting good deals on tools and materials will help your business become more efficient.
• Always monitor cashflow Invoice regularly, don't overstretch yourself and ensure you’re in a strong cash position before making any significant investment. Also, discuss cashflow with your accountant to make sure you aren't getting yourself into trouble.
• Look for good earning opportunities You have skills and they’re in demand, so look for the most lucrative opportunities to use them.
• Value repeat business Time quoting for work isn’t time earning money so look after your customers and encourage them to re-employ you and to recommend you to others.

Membership of a trade body will demonstrate to customers that you adhere to certain standards and procedures and that an independent source has validated your expertise.

Your reputation is crucial and – if you develop a strong one – will lead to incoming enquiries and more work. Membership of a trade body will demonstrate to customers that you adhere to certain standards and procedures and that an independent source has validated your expertise. In the UK there are long-established organisations that perform precisely that role. For instance, the Association of Plumbing and Heating Contractors, Electrical Contractors' Association or the Painting & Decorating Association all offer accreditation to their members. In some cases, there are minimum requirements for experience and years of trading, but enquire to find out more for your particular profession. There are also numerous Guilds for the older trades and professions that also do assessments and then provide members with the right to adorn a seal on their literature and websites. Similarly, find the right one for your trade and see how it can help you. Finally, there are also a number of Government-accredited bodies that aim to raise standards among tradespeople such as the Consumer Protection Association and Trustmark (Trading Standards). Once again, being vetted by these organisations can only boost your customers’ confidence in you.

Remember also that you’re working in people's homes and must respect your customers’ need to feel comfortable with your presence. Appearances and how you communicate with customers can be vital. A survey by the Electrical Contactors’ Association found that 78% of homeowners said politeness was important when selecting a tradesperson.

You might want to consider gaining additional skills or qualifications to improve your offering and reputation. This could be in your existing trade or in a complementary one. Some courses are short and last only a few days, although they often incur charges. If this is an issue then look into a Professional and Career Development loan. This could help pay for additional qualifications, such as short courses that enhance job skills. The loan is made by a bank and you can borrow between £300 and £10,000, which you pay back through monthly instalments. However, the Learning and Skills Council (LSC) will pay the interest on the loan while you finish your qualification.

"The main reason I set up my business was to be in control."

Pimlico Plumbers: ‘How I took control’

In 1979, Charlie Mullins established Pimlico Plumbers in London with his wife Lynda. Today, it’s a £14m turnover, privately-owned limited business with over 170 staff. "I’ve always wanted to be my own boss. I never wanted people telling me what to do or where to go," says Charlie. "The main reason I set up my business was to be in control." Charlie left school at 15 and learnt his trade through a plumbing apprenticeship before setting up by himself in 1972. At the time, he had little more than a toolbox and a hired van, but he felt it was enough to get his fledgling business off the ground. Charlie says his approach to business was, in many ways, a reaction to what he saw in the industry as an apprentice and young plumber. "The plumbing industry had quite a bad name, to some extent it still does, but it has got better. People didn't show up on time, they didn't finish work or they did a bad job, and they weren't transparent in the way they priced their work." Charlie's approach was to present himself as the opposite of this: dressing smartly, good timekeeping and providing written quotations upfront. He also – very deliberately – targeted the wealthier areas of London, such as Kensington and Chelsea, considering them the best sources of work and repeat business. "People are prepared to pay a premium rate if they get a premium service," he says.

Tristan Titeux, Custom Carpentry: ‘Trading on quality’

Tristan Titeux had always been a practical person by nature, so he decided to offer his services as a handyman and placed an advertisement in a shop for 50 pence. That first advert led eventually to the creation of a limited business with numerous clients and several industry-recognised standards. "I went to my first job on my bike with a couple of tool bags," says Tristan. "I started taking jobs to do general repairs, doing things like putting up pictures, but then people started asking me to do bigger and bigger things." He took on jobs such as making custom bookcases, getting the pieces cut at a timber yard and then assembling them at the customer's house. He now designs the furniture using a computer programme, which enables him to show the customer exactly how it looks before work begins. Also, in order to handle greater volumes of work and broaden his skill-base, he collaborates with other self-employed tradespeople. However, he always sees the customer himself and does all the design work. Tristan says that pricing work correctly can be a challenge, and persuading a customer to accept a price isn't always easy. However, he has countered this by having his work validated by independent bodies such as the Guild of Master Craftsmen, Trustmark and the Consumer Protection Association. "I’m not really a great salesman. There are always people who can undercut you and work for nothing, but I'd rather trade on quality than price."

Nick Minns of Minns & Langton: ‘From artist to decorator’

Nick Minns is an artist who specialises in painting murals, but decided to move into painting and decorating as it provided a more steady income. However, his brush skills have enabled him to run his own successful business for the last 12 years and he’s never had to advertise for work, relying instead in recommendations.

“Being self-employed is preferable to me to as I’ve always wanted to be my own boss. It’s more flexible and clients come to me when they need me,” says Nick.

After registering as self-employed, he and a colleague founded Minns & Langton. His friend primarily works on other projects now, but Nick retains the company name, as it’s known by customers. He remains self-employed but sub-contracts other tradespeople when he requires additional help on a job. “We spent some money on branding and an attractive website, which works in conjunction with any marketing that we do. I have some business cards but really all our work comes from word of mouth and people find my contact details online. I’ve never used advertising or third party websites. I think that’s the benefit of doing a good job and running a business based on quality rather than price – you don’t have to promote yourself as others do it for you.”

Nick says that 2009 was a tough year and he was unable to employ as many people on jobs. He also believes that for many customers price was the main factor. “I think this year we’re going to get a lot of work putting right the dodgy work done by others last year.”

Links: Trade

• Guild of Master Craftsman
• Trading Standards Institute
• Association of Plumbing and Heating Contractors
• Electrical Contractors' Association
• Painting & Decorating Association
• Customer Carpentry
• Pimlico Plumbers
• Minns & Langton

Links: Business

• Business Link
• Office of National Statistics
• Consumer Protection Association
• Learning and Skills Council