Starting Your Own Business

Be your Own Boss

You are probably thinking about starting or growing your own business. So, what is an entrepreneur, and what does it take to start your own business?

Business entrepreneurs are people who own their own business. They frequently work in their own firms themselves, but usually employ others to work in the business for them.

Many small business enterprises begin by relying on family members as the employees. Stories have become business legends about young computer entrepreneurs such as Bill Hewlett and David Packard who started a business in their garage and created a worldwide, global company, Hewlett-Packard (HP). Steve Jobs and Steve Wosniak share similar modest beginnings and became business revolutionaries, and wealthy, as a result of Apple Computer.
Although they are literally self-employed, entrepreneurs are not the same as people that are self-employed.

Entrepreneurs create value in the economy by providing jobs, and investment.

Sometimes people start a business out of necessity as a result of being out of work, or being dissatisfied in a current job. For the immigrant community, another impetus may come from over-qualification for the work available, or the non-acceptance of academic or professional credentials.

Why You Should Become an Entrepreneur...

  • Be your own boss. You chose who you sell to, who you buy from, who you work with. Including how much you work and how much you spend on promotion, production, and overhead.
  • Opportunity for greater financial success. When you work for someone else, you are contributing to their financial future all of the time, and to your own financial future only to the extent that they decide.
  • Opportunity to build equity. When you own your own business, you also own the means of production, which can develop into substantial value. This equity represents assets that can be sold to someone else or passed on to your heirs.
  • The opportunity to have control over your life and job. It is not just the ability to say what hours you will work but it also involves every step in the operation of a business. When you are the boss, all decisions from design concept to job creation, sales, business operations, and customer relationship management ultimately circle back to the boss and his or her philosophy and motivations.

Successful Entrepreneurs – Are You Like Them?

Entrepreneurs must not be afraid of failure. Thomas Edison is said to have commented about his many scientific experiment failures as not failures at all, but thousands of ways that he learned to not do something.

You must begin with a strong desire to start a business, combined with a good idea, careful planning, hard work, and the commitment to stick to it. A supportive family or social network has also been shown to be a contributing success factor.

Entrepreneurship will stimulate economic growth, create job opportunities, and change societies. In the developed world, successful small businesses are the primary engines of job creation, income growth, and poverty reduction.

Successful entrepreneurs have come from all elements of society. They include people of different ages, different income levels, both genders, and all races. Entrepreneurs may be very educated or have little formal education, but most share certain personal attributes, including: creativity, dedication, determination, flexibility, leadership, passion, self-confidence, and street-sense or knowing what works.

Creativity is the spark that drives the development of new products or services, or ways to do business. Entrepreneurs are usually innovators thinking of alternative and better ways to do something. It is the push for innovation and improvement that drives many, along with continuous questioning of the status quo. It is thinking outside the box that must be combined with self-motivation and hard work. Dedication makes it happen.

Business instincts are important. Instincts combined with acquired knowledge, and experience related to the business will result in success.

Although not all start-ups are successful, entrepreneurship offers the potential for great rewards at a personal, community, and society level.

 

Dealing with Banks

Do:

  • Be prepared when meeting your bank. When dealing with your bank it is essential that you are adequately prepared, even from the first meeting. Make sure that you have a clear Business Plan and that you can answer any questions that your bank may have.
  • Keep your bank informed in good times and bad times. If you inform your bank when things are going well, they are likely to be more understanding when things aren't going so well. If you are facing problems don't just ignore them. If you inform the bank of your problems they will be able to help you.
  • Use your bank as a source of advice. It is important to gather as much information and advice as possible, as good advice is the key ingredient of any successful business.
  • Choose a bank close to you. When dealing with your bank you want your business adviser to have knowledge of the market that you are selling to. By choosing a branch near your business location you will benefit from their expertise of the local market.
  • Shop around before choosing a bank. Don't choose the first bank you visit. All banks will have different financial products and offers so it is important to shop around and find out which bank has the best deal for your business. For example, some banks offer two-years free banking to start-up businesses.

Don't:

  • Be afraid to ask. Don't assume that you may not be eligible for finance. It is always worth asking. For example, security is not always needed when applying for a loan.
  • Make unnecessary trips to the branch. Take advantage of online and phone channels that your bank will offer. These will allow you to check your balance and make transactions without having to go to the branch.
  • Forget to take advantage of cost saving facilities that your bank will offer. If you use online and electronic transfers you will save on transactions fees, stamp duty, postage and your own administration.
  • Try to deceive your bank. It is important to be honest about your strengths and weaknesses as an entrepreneur as your bank will find out in the long run.
  • Go over your authorised limits. You will have to pay a charge if you go above your authorised overdraft limit. If the limit on your current account is insufficient, discuss an increase with your business adviser.
  • Credit Union
  • Don't forget your Credit Union. If you are not already a member of one, you should consider joining. You may well be able to borrow three or more times what you have in shares, over an agreed and extended period of time, even though the interest rate may be high.

Credit Difficulties

Many small businesses have difficulty getting credit. Your Business Your Bank (pdf) is a guide on getting funding for small and medium businesses. It includes information on how to prepare a bank credit application. The Central Bank published a revised Code of Conduct for Business Lending to Small and Medium Enterprises (pdf) which came into effect on 1 January 2012.

If you have a small or medium business and your application for credit is refused by one of the participating banks you may apply to the Credit Review Office to have your case reviewed. To be eligible for a review your application must have been in writing. There is a bank lending application form on the website of the Credit Review Office. The fee for the review ranges from €100 up to a maximum of €250.

The Credit Guarantee Scheme aims to encourage additional lending to small and medium businesses who are commercially viable but have difficulty in accessing credit. Under the Scheme eligible applicants will be assisted in obtaining a loan and in establishing a favourable credit history. You can find out more in the information booklet about the Scheme (pdf). There are also Customer Frequently Asked Questions (pdf) as well as details of eligibility criteria (pdf).

If you are having difficulties with your creditors the Chartered Accountants Voluntary Advice service (CAVA) can give free advice and assistance on your business affairs. Contact your local Citizens Information Service or Money Advice and Budgeting Service (MABS) to see if they offer the service.

MABS is a free and confidential service for people in Ireland with debt and money management problems. You can find out more in our document on dealing with debt.

Credit Union

Don't forget your Credit Union. If you are not already a member of one, you should consider joining. You may well be able to borrow three or more times what you have in shares, over an agreed and extended period of time, even though the interest rate may be high.

Becoming Self Employed

When you become self-employed it means you are carrying on your own business rather than working for an employer and there are a number of things to take into consideration. Working for yourself can have a number of advantages and disadvantages. For example, it means you are in control of what you do, so you can organise your own hours. On the other hand, it can involve working very hard and you may no longer have a regular income.

When you start a business you can do so either as a sole trader, partnership or limited company. The type of structure you choose depends on the kind of business you are carrying on, with whom you will be doing business and your attitude to risk. Here we look at setting up as a sole trader. That is, when you set up a business on your own. Being a sole trader is relatively straightforward to set up, but if your business fails, all your assets could be used to pay your creditors.

The Start Your Own Business scheme provides tax relief to people who are unemployed for at least 12 months and getting a qualifying social welfare payment and who set up a qualifying business. It runs from 23 October 2013 to 31 December 2016 and provides a two-year exemption from income tax (up to a maximum of €40,000 per year) for people who have been unemployed for at least 12 months prior to starting their own business. You can read more information in this Revenue guidance on the Start Your Own Business Relief.

Preparation

Much of the process of preparing for self-employment is about starting a business. This is the same information whether you are a sole trader or a partnership or company. The guide to self-employment, Toil and Trouble (pdf), is available on the Department of Social Protection website. The Irish National Organisation of the Unemployed have published a leaflet on starting your own business (pdf). Local Enterprise Offices and local development companies provide supports to local businesses that are starting up or developing. Businessregulation.ie is a portal to help you identify the main regulations which affect your business.

If you are a non-EEA national you can find information about starting a business in our document, Coming to set up a business or invest in Ireland.

Registration of Business Name

You may carry on your business using your own name. If you wish to use a business name you must register your business name with the Companies Registration Office - see 'How to apply' below. You will then be issued with a Certificate of Business Name which you must display prominently at your place of business. There is an information leaflet on registering a business name (pdf).

You may need to have a business account with your bank. This allows you to keep your business income separate from your personal income. In general, you will need your Certificate of Business Name to open a business bank account.

Tax

The main legal obligation when becoming self-employed is that you must register as such with Revenue. In order to set up as a sole trader you must register as self-employed for income tax with Revenue - see 'How to apply' below.

As a self-employed individual you pay tax under the self-assessment system. You pay Preliminary Tax (an estimate of tax due) on or before 31 October each year and make a tax return not later than 31 October following the end of the tax year. You must keep proper records to allow you to fill out your annual tax return.

Since 1 January 2011 the Universal Social Charge has replaced the health and income levies. You pay this directly to Revenue when you make your annual tax return.

You must keep accounts which record:

  • All purchases and sales of goods and services and
  • All amounts received and all amounts paid out
  • You must keep supporting records of the above such as invoices, bank and building society statements and receipts.
  • You may claim certain business expenses against tax as well as your contributions to your personal pension. Further information on tax is available on selfemployedsupports.ie, from Revenue and in the Revenue booklet IT 10 A Guide to Self Assessment.
  • You must register for Value Added Tax (VAT) if your annual turnover exceeds or is likely to exceed the following annual limits: €75,000 in respect of the supply of goods or €37,500 in respect of the supply of services.

Subcontractors: If you are a self-employed subcontractor working in construction, forestry or meat processing there is detailed information about Relevant Contracts Tax on the Revenue website.

PRSI

If you are self-employed you pay Class S PRSI contributions. This entitles you to a limited range of social insurance payments including, Widow's, Widower's or Surviving Civil Partner's Contributory Pension, Guardian's Payment (Contributory), State Pension (Contributory), Maternity Benefit and Adoptive Benefit. In 2014 Class S PRSI contributions are paid at a rate of 4% on all income or €500 whichever is the greater. If you earn less than €5,000 from self-employment in a year you are exempt from paying Class S PRSI but you may pay €500 as a voluntary contributor.

You should register for Class S PRSI with Revenue - see 'How to apply' below. The Department of Social Protection has published a leaflet PRSI for the Self-Employed-SW74.

Family Members and PRSI

If a self-employed sole trader either employs, or is helped in the running of the business by specified family member(s), this is known as family employment and these family members are not covered by the social insurance system.

Before 2014 spouses and civil partners of self-employed sole traders who worked in the business (as employees or in another capacity) were not liable for PRSI. From 2014 spouses and civil partners of self-employed sole traders who work in the business are liable for PRSI. The €5,000 income threshold applies to spouses or civil partners in the same way as other self-employed people, so if a spouse or civil partner earns less than this threshold they are not liable to pay PRSI.

If you are an employee of a limited company that is owned by your spouse or a family member, you are insurable at PRSI Class A (or Class J). If you are not an employee but participate in the running of the company or if you hold a directorship or shareholding position and have control over its operations, you may be treated as a self-employed contributor and liable to pay Class S PRSI (provided you earn more than €5,000).

Two or more family members who operate a business as a partnership and share the profits are insurable as self-employed contributors at Class S (if they earn over €5,000). Family members employed by a partnership pay Class A (or Class J).

Insurance

Although you are not legally obliged to be insured when you are carrying on a business, it generally advisable to have insurance cover for various situations. In particular if the public have access to your premises you should have public liability insurance.

You may also want to look into other types of insurance such as health insurance. The Irish Insurance Federation provides a free insurance information service where you can obtain information and advice on all aspects of insurance.

Planning Permission

If you are working from home you may need planning permission, for example, if you are using part of your home for business purposes or if you were to build a shed or an office in your garden. You should contact your local authority for advice about planning permission.

How to apply

To register with Revenue as a self-employed sole trader you do this using Revenue's online service. Certain people can only register on paper using the tax registration form TR1 (pdf) and you can find information about them here. This form can be also be used to register for VAT - see above. You will receive a "Notice of Registration" confirming that you are registered for income tax and, if applicable, for VAT.

When you register with Revenue you are automatically registered for Class S PRSI. For information on PRSI for the self-employed you can contact your Intreo centre or social welfare office or the Self-Employment Section of the Department of Social Protection.

To register your business name you apply to the Companies Registration Office (CRO) using Form RBN1 (pdf) or online using CORE (Companies Online Registration Environment).

For further information about the Back to Work Enterprise Allowance scheme contact the Employment Support Services of the Department of Social Protection.

Where to apply

Contact your local tax office.
Contact your Local Enterprise Office.
Contact your local development company.

 

 

Financing Your Business

Cash Flow

For the small and start-up business 'Cash Flow is King' – No cash - No business - it's as simple as that!

In the early days of starting a new business many people concentrate on making profits. But profits are not much use if they are all tied-up in debtors, work-in-progress, or equipment. This particular difficulty is common to almost every type of business: manufacturers, contractors, retailers, even accountants and solicitors. Sometimes it is a seasonal problem, in other cases cash shortages are a constant problem.

The cash flow problem is relatively easy to recognise - you just have no cash. You may have lots of stock, efficient plant and equipment, large amounts of debtors, and even an excellent profit record, but if you do not have sufficient ready cash to pay your way you have a big problem. This problem cannot go unsolved for very long – so lets look at how you can avoid this.

In creating your Business Plan you must list all the costs involved, and allow for unforeseen costs. Growing your business will eat money and, therefore, keeping a close eye on your expenses on an ongoing basis, and ensuring that debtors pay you on time is vitally important. Similarly, monitoring expenses, as a percentage of your turnover (total net sales), and comparing to the anticipated ratio in your Business Plan is well worth doing. This will keep your finger on the pulse of the business' financial health. Many people focus too much merely on the turnover figure and take their eyes off the ball when it comes to expenses. Remember that broadly speaking:

Turnover minus Expenses = Profit!

Financing Your Start Up

You may never get a better analysis of your Business Plan than when you approach a bank, potential investor, or an agency about finance. If you need money to finance your start up, it will only be available if you can convince the lender that you can pay it back.

The hardest question to answer is what kind of capital should you seek? - Often we are not aware of options that are available to us, or don't have the time to explore what is possible.

There are three main sources of money to fund your business idea: -

  • Equity
  • Debt
  • Grants
  • Equity


Equity is the capital invested in the business by you, the owner, from your own resources. The advantage to the business of equity is that there is no interest charge and a return is only paid to the investors if the company is making a profit. There are two main sources of equity: -

  • Funds from personal wealth
  • Profits generated by the business after takeover

If you are contemplating using your own funds to finance your business start-up it would be wise to get advice as to the most tax efficient method of investing your hard-earned money. For example, if you invest your funds as Share Capital you can only 'get it out of the company' by selling the shares to an interested party, or by closing the company down and distributing the resultant funds to the shareholder(s). This might attract Capital Gains Tax (CGT). If, on the other hand, you give your business a loan, then this can be repaid to you tax-free.

It doesn't make sense to use your savings 'to pay yourself' from your private bank or savings account as the enterprise gets under way and 'save' the company having to pay you in the early stages. Your business should always be charged a realistic wage for your efforts from the start. In the case where you have access to such funds you could lend the money to the company to pay yourself until such time as the business is in profit, and the loan can then be repaid.

Obtaining funds from family or friends can seem an easy and convenient way to fund your business, but there are a number of points to consider. For example, it is essential business practice to enter into a written agreement as to the precise terms on which such funds are sought and given. It is often too late some years after money has been given to the business and a problem has arisen, to recall the terms on which the funds were procured. Discussions as to what people 'thought' was agreed invariably end in an acrimonious confrontation and can ruin otherwise long-term friendly relationships.

When seeking funding it is important to realise that money alone is generally not sufficient. It is equally important that the investor understands the business, and brings other attributes to the table such as experience, customers and profitable contacts in the industry or other 'door opening' benefits.
Equity is free to the business on a day-to-day basis. If the business is in need of additional funds it may be an option to seek additional business partners, as an alternative to debt. Be careful though, because many business people make an early and costly mistake by 'giving away' equity stakes in their enterprise to secure start-up funding. If your business idea has real potential in the longer term, early equity disposal can eventually prove very costly for you.

If you are going to take equity partners, be sure that there is an agreement in place from the start so that the investor knows what they are getting, and how they are to get their investment back at a later date. One or two 'reasonable' sized investors are better than a number of small investors. Too many small shareholders can stymie further investment, perhaps from Venture Capital Funds, by creating too much investor 'clutter'.

There are a number of Venture Capital Funds available to invest in business projects. Investments can range from as little as €50,000 to many m millions, depending on the ultimate potential of the business idea.

Venture Capital seeks out worthwhile projects in need of funds at a critical stage of the enterprise development. Venture Capital Funds generally want their money back over a shorter term than most other fund sources and, accordingly, impose strict conditions on their investment terms as to repayment time scale and equity stake.

Venture Capital FundingWhen dealing with Venture Capital Funds, you must be conscious of the precise detail of any agreement entered into. Venture Capital Funds have a tendency to put increased pressure on non-performing enterprises that return looking for further investment. It is prudent when seeking Venture Capital Fund investment to be sure that you obtain adequate funds to deliver the expected results at the first attempt, otherwise you may find that you literally have bitten off more than you can chew, and any second bite leaves a lot less of the ultimate pie to be enjoyed by you.

Some agencies, such as Enterprise Ireland, have a panel of potential investors who have indicated their willingness to invest in worthwhile businesses. Most of the major accountancy firms and legal practices also have clients willing to take a financial plunge given the right opportunity. When contemplating such a course, you should attempt to secure the financial backing of someone who knows the nature of your business, and can bring more than just money to the table. It is essential that the investor also brings experience, input, customers, and 'door opening' abilities.

Debt

There are various types of debt. Some of these are general in nature, and some tailored to a particular purpose. Providers of debt finance like to see a reasonable financial investment contributed by the owners of the business. This is because: -

  • They do not like to take all the risk
  • Equity money is free
  • In the case of insolvency, the debt is paid back before equity.

Lenders describe the relationship between debt and equity as the 'debt to equity ratio' or 'gearing'. There are many different types of debt, some of which are listed below. Only some of these are likely to be relevant to your business: -


General:

  • Term loans.
  • Overdrafts.

Business:

  • Government Loan Guarantee Scheme.
  • Trade creditors.
  • Asset-linked
  • Invoice finance (for businesses that sell on credit).
  • Hire Purchases.
  • Commercial mortgages (for business property).
  • Plant and equipment finance.
  • Leasing (for vehicles or equipment)

Information Sources

Information 

If you are thinking of setting up a business there are a number of issues you need to consider. Different supports and regulations apply, depending on your particular situation. You may be employed, unemployed or someone who is coming from outside Ireland to set up a business. 

You can find more information in these documents on becoming self-employed and closing or selling a business. General information for doing business is available on pointofsinglecontact.ie. Other sources include: the guide to self-employment, Toil and Trouble (pdf); Financial Support for Irish Business (pdf) and a leaflet on starting your own business (pdf) published by the Irish National Organisation of the Unemployed.

Your Local Enterprise Office provides information, training, advice and financial support to small businesses.

Resources for starting a businessEnterprise Ireland is an Irish Government agency which is responsible for the development of Irish industry. It provides advice and financial support to High Potential Start-Up (HPSU) businesses. You can find information about starting a new business on its website.

IDA (Irish Development Authority) Ireland is an Irish Government agency with responsibility for securing new investment from overseas in manufacturing and internationally traded services sectors. It can provide information about setting up a business in Ireland and may provide grants to companies wishing to locate in Ireland or expand their existing operations in Ireland.

The following organisations provide their members with advice and information about running a business: Small Firms Association (SFA) and Irish Small and Medium Enterprises (ISME).

The Enterprise Europe Network has published Info2innovate, an online directory of innovation supports and services for small and medium enterprises.

Unemployed?

If you are unemployed you may be eligible for the Back to Work Enterprise Allowance (BTWEA) or the Short-Term Enterprise Allowance (STEA). If you are starting a business, you also may get extra supports under these schemes, for example grants for training, market research, business plans and access to loans to buy equipment.

The Start Your Own Business scheme provides tax relief to people who are unemployed for at least 12 months and getting a qualifying social welfare payment and who set up a qualifying business. It runs from 23 October 2013 to 31 December 2016 and provides a two-year exemption from income tax (up to a maximum of €40,000 per year) for people who have been unemployed for at least 12 months prior to starting their own business. You can read more information in this Revenue guidance on the Start Your Own Business Relief.

Foreign Nationals

Nationals of the European Economic Area (EEA) or Switzerland do not need permission to set up a business in Ireland. Generally, non-EEA nationals must get permission from the Minister for Justice and Equality in order to set up a business in Ireland. They may be eligible to apply for the Immigrant Investor Programme or the Start-up Entrepreneur Programme. If they wish to start a retail, catering, personal services or similar business they should apply for the business permission scheme.

 

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