5 tips for setting up your sole trader business

Start your business the right way! Even if this catchy pun sounds rather light-hearted, you should take the time to plan your venture thoroughly. A good start has a lasting impact and can protect you from a few surprises. Some people are practically born to run their own business and would feel completely stifled in an overly regimented employment environment. Others, however, take self-employment too lightly and slide unchecked into business ruin. But before this gets too melodramatic, let’s look at the ‘cornerstones of starting a business’ – because once you know these, you’re already well on your way.

1 | What do I want and how do I want to achieve it?

Concept and business plan. First, the sobering statistic: only one in four start-up founders ‘survives’ the initial phase, or manages to turn a profit. This may well be partly because they have not clearly defined their goals and set them out in a business plan. The dream of making a quick fortune and achieving independence may sound tempting, but it’s best to approach the matter realistically. Perhaps these questions will help:

1. What do I actually want? (specifically, the one thing that really matters, not the countless other things you might also want)
2. Calculated on a per-envelope basis, does it all add up, and how quickly could I start making a profit?
3. What does my schedule look like? (Here too – stay realistic; you can’t ‘cram everything in’ during the first few weeks)

Especially when you’re trying to convince potential investors or co-founders, the company’s roadmap should be in place. You won’t win over investors with ‘we’ll see’ and ‘it’ll work out somehow’ – and, above all, you can’t really use these standards as a guide.

The golden rule: keep it simple – things will get more complicated later on anyway. The simplest questions you can ask yourself are also the most important ones!

2 | Accept help and seek help

Network and support. Independence sounds tempting, but be aware of the tasks you’ll have to take on yourself if you’re on your own. This starts with planning, bookkeeping, customer acquisition and, basically, almost everything. You may have to find office space, you’ll need warehouses or logistics, and even trivial tasks such as putting up a shelf or changing the tyres on the company car will fall to you.

So: don’t be too proud – seek help. One thing’s for sure: others have already made countless mistakes; perhaps you can learn from them. Talk to people – colleagues or friends – about it. This is often how you build your first small network or find future partners. It’s perfectly natural that you know every detail of your business and occasionally lose sight of the bigger picture. It’s a huge help when those around you bring you back down to earth with an objective outside perspective. Questions such as (see point 1) ‘What do you actually really want?!’ are the classic way to keep your feet on the ground!

Yes, it’s your ‘baby’ – you came up with the idea, know every detail of your business plan and have countless answers to every question. And yet, there may well come a point when you need help in the form of staff. Or perhaps even partners. There are certain things you can delegate, even if it seems impossible at first glance. You need to steer your business or your idea; that doesn’t mean you have to do every single task (physically or mentally) yourself.

3 | The number one deterrent: finances

Insurance and tax. Perhaps the biggest hurdle is the financial black box. How much do I need, what do I have to pay in, and, above all, what happens if my idea doesn’t work out? Setting up the business itself isn’t expensive; apart from the fees at the registration office, many sole traders are ready to go straight away. Once the business has been registered, you must submit an estimate of your income to the tax office, on the basis of which income tax and other levies are calculated. Whilst small business owners can be exempted from numerous charges – for example, to make getting started easier – you should always bear in mind that these charges increase as your income rises.

To put it simply, the gross amount in your account may look very good, but you should also be aware of what that means in terms of the net figure. Speaking of accounts – even if not all types of business require it, you should definitely open a company or business account and keep your personal and business finances separate.

Although there is little room for expenditure in the initial start-up budget, you should also consider taking out insurance. Depending on the nature of your business, you may face significant risks; and even though setting up a sole trader business is quick and easy, you remain personally liable with your private assets.

It may sound as though this is an advert for banks (business accounts) and tax advisers (Blackbox Finanzen), but it would be wise to factor in both. Often, the tax adviser will recoup the costs themselves, simply because they have the specialist knowledge to identify all possible ways to save money. And as already mentioned, you don’t have to do everything yourself. Bear this in mind when you’re sitting there doing your first tax return and thinking about all the productive things you could be doing with that time…

4 | Take me to the cash

Start-up capital and grants. Rule of thumb: you should set aside around 15 per cent of your own capital for your business. It’s worth mentioning the business account again: keep your personal and business finances separate, and only use it once you’re sure that you’ll actually have money left over at the end of the day. For most entrepreneurs, this ‘end of the day’ doesn’t come straight away, but is delayed (though it then hits with a certain degree of unforeseeable force).

Your start-up capital should already be set out in detail in your business plan. Some founders are already fully equipped with a laptop and a smartphone (or even just the latter), whilst others require initial investment or even loans. This makes it all the more important to plan, make realistic estimates and start with the necessary capital.

Please note, here’s a rather black-and-white example: there are two types of founders. Some want to build everything up from scratch themselves, rarely accept help and are all the more proud afterwards of having achieved it all on their own. The others – let’s call them ‘grant-hunters’ – take whatever they can get. A slightly more nuanced picture: there’s nothing wrong with getting a bit of a helping hand to get started. To ease your conscience: once your business is up and running smoothly, you’ll probably pay back many times that amount in the form of taxes and duties. And if your promising business fails early on and quickly becomes a thing of the past, nobody benefits from it.

5 | Bureaucracy – it’s not all that bad

Business registration. The first piece of good news: many business registration offices even allow you to apply online. The second piece of good news: even if they don’t, registering a business isn’t as complicated as you might think. You’ll need your business’s legal form, your personal details, a description of your business and your bank account details. Of course, it can also be more or less complicated. For a free trade, the question is often simply ‘Can you do that?’, and a confident ‘Yes’ is usually enough to secure your trade licence. If it isn’t a free trade, however, you’ll need to provide certain supporting documents or appoint managing directors who are qualified under trade law and who are actually capable of carrying out the business. Without going into further detail (there are plenty of other websites on this subject that are quick and easy to find), fear of the ‘hurdle’ of business registration is no valid excuse for not setting up a business!