Setting boundaries, getting comfortable with credit and leveraging your unfair advantage are all strategies to help sole traders get ahead
For every business owner who makes the headlines, appears on Dragons Den or has their face looking out at you from the shelf of an airport bookshop, there are thousands of others who tell a different business story – sole traders who are able to achieve growth that big players envy.
Sole traders make up a huge proportion of business owners: these are people who are providing for themselves and their families, working directly with clients and delivering promises every day.
A sizeable majority of businesses start as sole traders. It is the simplest way to start a business and with platforms such as eBay, Etsy and Fivr, the store is already built: all you need to do is lay out your stall and set your prices. This is particularly attractive to tech-savvy young people with an entrepreneurial streak and an understanding of what they and their friends want to buy.
Simple to start, but perhaps not so simple to run: every decision, from pricing goods to writing copy for websites, rests with one person. What should sole traders do to ensure that they not only have healthy businesses that reward the time it takes to run them, but to actively grow and pay back to their founder?
The most important thing for sole traders to do is to know where to draw the line between business and personal. This line can become blurred, especially if you find yourself using one bank account for business transactions and personal purchases: doing the accounts can suddenly become more time consuming and complex when you have to go through every item line by line.
I would argue that separate bank accounts are essential. You should also make sure that you have a clear boundary between work and personal life – a boundary that can become very porous if you start asking friends for help (or to become customers).
If you’ve always muddled along, I would recommend that you stop now and draw a line in the sand: you might find that when you treat business like business, you are able to make more objective decisions about how you run it – and find it easier to achieve what you set out to achieve in the first place.
The other issue to tackle is outsourcing: as you are making every decision, you are limited in the number of these you can make in a day. Outsourcing the things you cannot do (or cannot do easily) is a solution. Many sole traders will outsource to an accountant, particularly if numbers are not your strong suit, or you find the rules around tax confusing (as an accountant, I know that the rules are meant to be confusing).
There are plenty of other tasks to outsource: marketing, manufacturing and website design are three examples. If you work from home as many sole traders do, you might find you are spending time doing housework rather than attending to your business (especially if you’re living with someone who has a 9-5 job): there is a strong business case for outsourcing this!
As you grow, you also need to keep in mind how your finances work: are you holding yourself back from growth because you want to avoid registering for VAT? Does setting up a limited company feel like more trouble than it’s worth? Are you crossing the personal / business boundary again by using your personal credit card for business purchases?
Your accountant will help you make the decision about how you structure your business for tax efficiency: you should remember that VAT is based on turnover rather than profit, and it is all too easy to have a VAT bill that eclipses your margin. Being a limited company will limit your personal exposure to VAT.
Your accountant should also be able to take the hard work out of setting up a limited company if this becomes necessary. And just as you should have a separate business bank account, you should also have a seperate business credit card.
As a sole trader, credit cards are not your only choice if you need access to more funds that are in your account. There are a large number of borrowing option on the market that could be better value for your business and are available to you as a sole trader. From asset finance to commercial mortgages, borrowing can cover anything from a new computer to a buy-to-let house, and these are open to sole traders.
Borrowing should not be off the table for sole traders. “Bootstrapping” means a business only makes purchases with money in their account, and you can tell immediately when you are in a bootstrapped business: equipment is old and under-performing and there is an “if it can be cobbled together, don’t fix it” mentality. Businesses that borrow are brighter, more optimistic – and customers feel it.
In short, if you need to buy something to grow, consider borrowing.
Finally, as a sole trader you have an unfair advantage: you have a level of agility that larger organisations would kill for. Change is one of the hardest things for a larger business to achieve: as a sole trader, you can wake up tomorrow and immediately do things differently.
The smaller you are, the easier it is to charge based on your expertise, not your time: figure out where you can add value to your customer and make sure you’re not competing where the bigger players can push you out. Big buisnesses scratch their heads and ask themselves how they can know their customers better. Your best customers are probably a phone call away. Remember the 80:20 rule: get in touch with those top tier customers, find out what they like and deliver it better. And those customers who are more trouble than they’re worth? Block their numbers.
It’s too tempting for pointy-headed business journalists to write off sole traders, but the best of them have exciting stories, remain ambitious and can grow to a size that suits the needs of the founder. They sometimes do things that bigger businesses can only dream of and take an innovation into the marketplace with speed and passion. A new generation of young entrepreneurs is making waves – and I for one am here for it.