New Web Design Company - Sole Trader or Limited Co ?

[dweezer]

Hi everybody,

my name is Daniel and I am thinking of starting up my own web design and hosting service company.

I have a few questions to the more business minded folk around here and would really appreciate some feedback and advice.

My current situation is that I am employed full time, working in the Retail industry, but I have experience in web design and would like to start a small part time business offering web design services and website hosting.

My first concern is whether to set up as a sole trader, or as a private limited company.

I want to keep business administration to a minimum or outsource it as much as possible for as cheap as possible, as I would like to concentrate my efforts into the design of websites and hosting them online.

After a spot of forecasting and number crunching I've estimated roughly that it would take X number of sites to be designed and hosted until I would be able to earn enough money every month to be able to quit my full time day job in retail and develop the Web Design company full time.

The estimated time to do this is between 18 months - 2 years. So essentially, it'd be 2 years before my business is profitable enough for me to work on it full time.

This raises a few questions for me regarding the Sole trader / LTD company decision.

My problem is that as I would be working on designing web sites part time, I would probably be making only one or two sites a month, and receiving payments for this service.

It's my understanding that if I set up as a Sole Trader I would take drawings from my accounts each month to pay myself for the work I have done. And if I was working for a Limited Company as a Director, I would have to pay myself a salary.

My issue is that for the first 18 months - 2 years I am going to be earning very little money. This is fine as I will have my fulltime job to support myself, but if I have set up my company as a limited company, is it possible to pay yourself as a director very little in salary, or is there a minimum wage you must pay yourself? I would prefer not to pay myself anything really, and just put any money I make back into the business, to have as capital.

If anyone has any experience of this kind of situation, or beneficial knowledge to share I would really be thankful.

Best Regards,

Daniel.

 

[Paul_Rosser]

Hi Daniel,

Henry put up a post on the pros and cons of Sole Trader v's Ltd which you may find useful - http://www.ukbusinessforums.co.uk/forums/showthread.php?t=281430

If you work for a limited company as a director and shareholder then you don't have to take a salary, most directors take a salary up to their allowance (around £8k) and then take shareholder dividends for anything else as these don't attract NI.

As you are already employed elsewhere your allowance is most likely used up on the salary they pay you, so paying yourself a salary through your new business won't be as tax efficient as just paying dividends, depending on your current salary though these may attract extra tax if they push you into the higher rate bracket.

 

[Alan]

I'd say limited company, you don't have to pay yourself a salary or a dividend, just retain profit after tax in the company. So whilst you are working you will be building up working capital in the company.

 

[Optegris]

Or alternatively don't pay yourself anything from the business and retain the profit in savings. Give yourself a buffer for when you do go full time.

 

[emediastudiosuk]

I would recommend Limited Company as you are protected by 'Limited' liability. Most good accountants will advise you on your obligations so just ask them what you need to do.

You will make significant savings going Limited Co and after a while you'll get used to what needs doing from a legal point of view.

 

[Alan]

@openmind lol didn't I say that first

By the way, I think it is a good idea to dip your toe in and get experience whilst you have a job. Jobs are very hard to come by at the moment so it is something to value.

The web design / hosting market is very crowded at the moment, and many players have been in business for years so have a massive head start. You will also be competing with providers that have offshore resources that cost very little, so you will have to work out your niche and how you are going to market to them.

You should also revisit your number crunching.

You say two sites per month => 48 sites in 2 years

At best, assuming all sites host with you, and none go out of business, at average web-designer hosting prices will give you around £400 per month hosting INCOME, then you need to deduct costs (and you will need to spend more than a low cost / over sold reseller hosting account it you are to keep your clients and reputation ) your PROFIT will be quite small.

Also, from my experience of being in business, take all your projections and tear them up. The number of clients you will win will be massively less than you plan, and the amount you have to spend to win a client (marketing cost per acquisitions) will be massively more.

Don't take this the wrong way, I'm not trying to put you off, I hope you do do well, just giving some of my experience.

 

[Optegris]

@openmind lol didn't I say that first

You did, I was speed reading on a phone

 

[emediastudiosuk]

Although the web design market I find that once you win customers, if you give them over and above service, such as throw in some free cloud storage, offer them a free email template etc. then they often come back again and again.

I use People Per Hour 'hourlies' to advertise what I can do for a set price.

eg. I can create an email template for £6.

While this may sound low, it is like having a new customer offer. You can then grab their email and offer even more services.

I also gain work on odesk.com and elance.com - It's best to sign up as an employer so that you can also outsource work. I outsource small tasks frequently and mark up the profit.

When applying for jobs I always take time to address key points in my proposal.

I find it best targeting people in my city. I say something like..

'I live in London too, so I could always meet you to discuss this in person and am available to talk this through on the phone anytime'

I find that this has actually given me more winning proposals and once people meet you they feel relaxed that they can always get in touch.

Good luck with it all. You can always add a new 'hourlie' each day in the evening and still continue in your current job. That's what I did, then I went full time.

 

[MyAccountantOnline]

Hi Daniel

The truth is no one here can advise you properly.

The best option for you will depend on many factors and certainly anyone advising you needs to have full details of your income, personal circumstances and projected business income and expenses.

My advice is to get some proper advice from an accountant - it's an important decision and getting it wrong could be expensive.

I see so many people paying unnecessary and avoidable tax just because they didn't see a professional first.