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5 Money Mistakes To Avoid As A Sole Trader

Entrepreneur Darren Fell aims to make things easier for the self-employed via his range of financial services. Linda Whitney reports 5 Money Mistakes To Avoid As A Sole Trader

Running your own business can be exciting and rewarding, but there’s one aspect most of us hate - dealing with the accounts and tax. And if calculating your tax liability is not bad enough, there’s one task that’s even worse - dealing with HMRC. Who doesn’t have to steel themselves to call them up?

Better way

As the owner of a start-up, Darren Fell experienced this first-hand and thought there must be a better way. He set out to provide it by setting up a service that helps micro businesses to get their tax issues sorted. But unlike most people who offer services like these, he’s not an accountant.

Darren explains: “I had been a telecoms sector executive, but I wanted my own company, so I started an online marketing firm called pure360.com. It was based in a bungalow behind Brighton station and started with very little capital, mainly raised from loans.

“I was burning through £10,000 a month and things were looking scary. It got to the stage where I had to get a big deal or go bust.”

Then he presented his digital marketing services to a big London advertising agency.

“When the chairman said we had won the deal - and that the client was Levi’s - I was overjoyed,” Darren says. “I ran down Shoreditch High Street waving my hands in the air. We had been saved from bankruptcy and won the Levi’s digital marketing account.”

Bigger problem

He went on to win Malmaison Hotels, Faber & Faber and Innocent drinks. Seven years later he had 900 customers and a team of 60 - but he wanted to solve a bigger problem.

“I’d started a micro business and I knew first-hand the problems they faced in doing the books and dealing with tax,” Darren says. “I recalled sitting with my entrepreneur mates in the pub, fretting about the surprise tax bills we had to pay at the end of the year.”

Then accountant Steve Crouch approached Darren with a basic idea for software and he took the idea further.

“What small and medium-sized enterprises and micro businesses needed was an online service, linked to their bank accounts, so it could take payment information from receipts, tell them how much of each payment to put aside for tax bills as they went along and then prepare their full year-end accounts - in effect, ‘live’ accounting,” Darren says.

Darren and Steve designed the system and the service, called Crunch, was launched in 2009 aimed at businesses ranging from sole traders to those with up to nine employees.

But when your target market is SMEs and sole traders, you face a problem. There are thousands of them but how do you find them? Darren hit on a way that would mean rather than him having to go out looking for Crunch’s initial clients, they would come looking for him.

Potential customers

“I built a website called Freelance Advisor offering advice to freelancers and micro businesses,” Darren says. “That gave us a ready supply of potential customers and it’s now incorporated into Crunch.”

However, for many SMEs an onlineonly service is not enough. How does Crunch cater for those who are looking for advice and help with tax issues from humans rather than computers?

Thinking back to his early days in business, Darren remembered that calling HMRC was something many start-ups and SMEs dreaded, so Crunch clients get an account manager who will take on the task on your behalf.

“It takes the fear out of calling them,” Darren says. “We also offer access to an accountant to answer tax questions. This is important because if you ask HMRC for tax advice they will only give you their solution, which is not always the most tax efficient for you.”

If this all sounds like the solution to your tax problems, be aware that it requires paying a monthly fee, currently £29.50 for sole traders and £69.50 for limited companies, including unlimited accountancy time and all accounts and filings.

Benchmark the Crunch offering against the service and annual fees package you could get from an accountant and/or bookkeeper.

Building a community

It’s nearly a decade since Crunch was launched, but Darren is still passionate about addressing the problems of micro businesses, which is why Crunch provides services such as mortgages, pensions and insurance for the self-employed.

“I want to build a community of micro businesses and make financial services available to them,” Darren says. “They are currently underserved, despite the fact micro businesses, and especially sole traders, are the fastest growing part of the UK SME market.”

Most services aimed at SMEs assume that their prime motivation is to grow into big businesses, but for many this is not the priority, according to Darren.

“The majority of small firms stay in the one to nine employees category,” he adds. “Often they don’t actually want to grow into big organisations, but that’s no excuse for their needs to be neglected.

“I’ve heard of micro business owners who have abandoned self-employment and gone back to being employees just to get a mortgage. They should not have to do that.

“For the self-employed, solving problems like these is hard, but I am still passionate about making things easier for them.”

Five money mistakes to avoid

Based on his experience with Crunch, Darren Fell found these are the most common mistakes small and medium-sized enterprises make:

  • Avoiding dealing with accounts and tax: “Everyone hates it, but if you leave it too late it will be even more painful.”
  • Not knowing the state of your business finances: “Set up a system - spreadsheet, invoice book or online accounting - and keep it up to date, so you can see the money position any time.”
  • Hate doing the accounts? Outsource it and concentrate on what you love.
  • While doing one project, trawl for others: “Create a business pipeline or you risk financial feast and famine.”

Don’t be scared to ask for payment: “Ask for a down payment up front and chase payments before their due date.” Read more like this

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