Find the right workspace for your budget
The UK has always been a hotbed for entrepreneurs. In fact, according to the most recent Labour Force Survey from the Office for National Statistics, more than three million workers in the UK are self-employed and the recent recession has led to an increase in the number of people who work for themselves.
"We have seen a marked increase in management-level individuals striking out on their own after being made redundant," says Ganesh Selvarajah, an adviser for Business Link, a national government-supported service for small start-up companies.
Setting up alone involves finding a base from which to work. Premises need to be convenient, affordable and suitable for your personal and business needs.
So where do you start?
When you first set up a business, your home is often the most natural place to base yourself. "Working from home means the business will not incur rent and overheads on additional premises or office space," says Sara Lee, spokesperson for the Federation of Small Businesses.
However, depending on your circumstances, working from home can be problematic. If you are using your home to store products to sell, for example, this could invalidate your household insurance, leaving your home and business at risk.
Lee Griffin, head of home insurance at gocompare.com, says: "In this case, the first thing to do is call and tell your insurer. It's likely that the use of your home will be classed, at least in part, as commercial use and will require specialist cover.
If you have clients coming to your home, you will also need public liability insurance in case someone has an accident on the premises."
If you are building an outhouse for your business – for example, a cabin in the garden as your dog grooming salon – you may need planning permission from your local authority.
It's also a good idea to call the Valuation Office Agency to check if you will be liable for business rates. Your mortgage lender also needs to be informed. If you rent your home, your lease may prevent you from using the property for business purposes.
If you are simply providing a service that requires just yourself, a telephone and a computer, the situation is a lot more straightforward.
Once you have registered with HM Revenue & Customs as self-employed, you will be able to offset your business costs against tax.
These costs include everything from the costs of office equipment, such as your computer and furniture, to part of your heating and lighting bills, and even mortgage interest proportional to the room you work from.
Discipline is often the biggest hurdle to working from home, says Selvarajah. "It can be very easy to become distracted. You are constantly reminded about that shelf that needs putting up or the pile of washing that needs doing."
That's why a growing number of people are opting to rent office space. Depending on your type of business, this could be just a workstation in a shared office – incorporating a desk, computer, telephone and internet connection – a private space or an entire office unit.
"Needs vary according to your type of business," explains Simon Jones, commercial director for officebroker.com, an online search facility for the serviced office industry. The cost of running an office can vary considerably, depending on its size, facilities and, most importantly, location.
"A law firm or financial institution will pay for the right address, whereas if you just need to bunk down somewhere at a desk for a few days, this won't be an issue," says Jones.
Renting an office
Costs are reasonable. In January this year, the average cost of renting just one workstation in London E1 – just outside the city's financial centre – was £201 a month, according to officebroker.com. This compares with £96 in Newcastle and £159 in Bristol for a similar set up.
Whatever the cost, the universal appeal of the serviced office industry is its flexibility, claims Jones. "In the vast majority of cases, workers are on a rolling monthly contract, so they just need to give a month's notice if they want to leave."
Deposits are not usually required, although this is not always the case, he says.
A local search could pay off for those seeking separate units to rent, says Selvarajah. "Local authorities often own commercial premises to let themselves or in partnership with local letting agents.
While no national grants are available for office space alone, there are good deals to be had. You may be offered the first three or six months rent free, for example."
Deals like this will, however, almost certainly involve a contractual commitment, which – especially for a one-man band or start-up on a tight budget – is something to be wary of. "It's crucial to look at the terms and conditions of any lease carefully," says Selvarajah.
"For example, how long is the lease? Can the rent change and when? What is the notice period?" He adds that it's worth negotiating on the terms and conditions that are first offered.
Buying a workspace
Buying an office space is only something to consider once your business has been well established for some time and is heading towards profitability.
Even if this is not important to you, it will be to a commercial mortgage lender, says David Whittaker, managing director at broker Mortgages for Business.
He says: "A lender will want to see at least three years' trading accounts, with the most recent year being either in profit or moving towards it.
Commercial banks will also assess credit risk – the kind of sector your business is in and whether it's likely to be successful in the current market."
If you are accepted for a loan, you will need a 20% to 30% deposit. Mortgages are typically taken on a term of between 15 and 20 years on a repayment basis.
"For the first couple of years, when you need to preserve capital, lenders will usually allow you to pay just the interest," says Whittaker.
Commercial mortgage rates are similar to residential deals. They range from 2% to 4% over base rate, which is currently 0.5%. Fixed-rate loans are available if you want to control your costs. However, the cost of such a deal will only be agreed as you near completion.
Buying your business premises has some advantages. First, you may be able to sub-let space.
"If you have bought 2,000 square feet, but only need 1,000 for the first year or so, the lender will not only allow but actively encourage you to rent out the extra space, as it makes sound business sense," says Whittaker.
If the property increases in value, you will benefit from the capital gain and won't need to worry about the landlord hiking up the rent.
While variable mortgage payments can rise, the interest portion is tax deductible. You also have the option of remortgaging the property to raise money for the business.
Of course, there is a downside. You have to pay the bills, insurance costs, business rates and general maintenance costs for the property. And you will have less flexibility to cope with changing circumstances, by switching to a smaller space, for example.
The success of buying may ultimately hinge on what happens to the value of the building. And as everyone now knows, this can go down as well as up.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.