Many employees think about starting a side business while they are still in full-time work. This can provide a way to test the waters of entrepreneurship with the advantage of the safety net of employment.
But there are certain pitfalls and obstacles which need to be considered before setting up a side business. In this blog, we will guide you through some of the aspects of starting a side business while still employed.
What are the advantages to setting up a side business while employed?
Most employees will not consider starting a side business while they still have a full-time job. If they are satisfied with their career and monthly pay packet, there will generally be little reason to spend time and effort on another venture. However, there are also many employees who dream of running their own business and being their own boss, breaking free of set working patterns and a fixed wage.
Making a foray into the world of business whilst still in employment has some significant advantages over quitting your job before going it alone.
One of the most stressful elements of setting up a new business is the lack of any guaranteed income. It normally takes a while to become established, find clients, and actually get paid. So setting up a side business while still in paid employment takes a huge burden off your shoulders, at least in the early stages.
Other than the financial pressures, setting up a business for the first time is often a step into the dark. Wannabe entrepreneurs do not actually know whether they are cut out for business until they have experienced it, at least to some extent.
Starting a side business while employed provides an opportunity to try it out without fully committing, to discover if it is the right move. It is easier to change your mind and give up on the idea of entrepreneurship if you still have a full-time job.
What are the challenges to starting a side business while employed?
The advantages of setting up a side business while in full-time work can, ironically, often pose some of the biggest challenges. If someone does not need to fully commit to a new venture because they can fall back on their job, they will often not put as much effort into getting it off the ground.
The financial safety net of employment often serves to tame entrepreneurial instincts, preventing a wholehearted attempt to embrace the inherent risks of business.
Another major obstacle, particularly for full-time employees, is finding the time to set up a side business. If you factor in the daily commute and household chores, most people with full-time jobs will only get a couple of hours of free time on weekdays, during which they usually want to relax and unwind. This leaves weekends and holidays as the only days which can realistically be dedicated to a business venture. And for anyone with children, even these “free days” may not be an option.
But even if an employee has the time and motivation to set up a side business, they may be prevented from going ahead by their employer.
In some cases, there will be an explicit clause written into the terms of an employment contract, which stipulates that the employee is not permitted to engage in any business activity beyond their employment.
However, the lack of a specific clause in the contract does not mean an employer would be happy with their employee setting up a side business. Doing so could cause a rift and lead to the breakdown of a previously healthy employment relationship. In some cases, attempting to set up a side business could lead to the loss of employment – and if the business also fails to take off, this can prove disastrous.
6 steps to starting a side business while employed
So you have weighed up the pros and cons and decided to set up a side business while you are still employed. But what are the main steps for turning this intention into reality?
Setting up any successful business requires a large degree of careful planning. Some of the questions which need to be considered when planning a side business include:
- What exactly is the product or service and how is it unique?
- Who are your customers and is there a big enough market?
- What is the competition and how can you differentiate your business?
- How will you generate sales or find clients?
- What is the capital required to start trading?
- How much time will you need to dedicate to the business?
- Do you need to learn any new skills?
- Do you need any employees or contractors?
- What are your targets or goals?
2. Business structure
Once you have a business plan in place, it’s time to decide on a business structure. Most people setting up a side business will choose to start out as sole traders. This option does not require any formal registration of the business, but you will need to register for self assessment so that you can pay any necessary tax beyond what you have paid as an employee via PAYE.
Many people will decide to register a limited company and trade through this corporate entity. Although there are more formalities involved compared to running a business as a sole trader, there are also certain benefits such as limited liability. Setting up a limited company can be done in a matter of hours for as little as £12.99 when using 1st Formations.
Other business structures include Partnerships and Limited Liability Partnerships (LLPs). These may be more appropriate where two or more people are considering setting up a side business together and wish to run it using a partnership model.
3. Choose a name
Although sole traders officially conduct business using their personal full name, many additionally have a business name that can be used for marketing purposes.
A business name cannot be too similar to that of a competitor, as this can lead to accusations of “passing off”. What this essentially means is that customers should not be under the false impression that they are purchasing products or services from a different company.
There are specific rules for choosing a company name. First of all, it must be available to register at Companies House and it cannot be too similar to another company name – this can be determined by using the 1st Formations’ company name checker on our homepage.
Secondly, a company name cannot use any offensive words, or any words deemed to be “sensitive” – an official list can be found here. Finally, the name must end in either ‘Limited’ or ‘Ltd’ (or the Welsh equivalents of ‘Cyfyngedig’ and ‘Cyf’).
Virtually every business has a website these days. Anyone setting up a side business will often be particularly reliant on their websites, as they will likely not have actual business premises such as a physical shop.
Depending on the nature of their business, they may be trading through their online store. At the very least, it will act as a “shop window” for prospective clients, so it’s important that it is well designed. It should also contain engaging content, to ensure it gets picked up on search engines.
Registering a suitable domain name for the website is crucial. This should be done at a very early stage, before building the website, and ideally at the same time as choosing a business name. Securing a good domain name is arguably as important as the choice of business name. It’s vital that both a company name and the domain name are available for registration.
Some degree of understanding of digital marketing is important, so a website can be used to its full potential. This may include getting to grips with search engine optimisation (SEO), social media marketing, and online advertising, to drive traffic to your website and gain new prospective clients.
It’s important to understand all the rules and regulations for your side business before you start trading.
It may be necessary to obtain certain permits or insurance, depending on the type of products and services and if there are any employees, etc. Most business owners will also need at least a basic grounding in data protection to ensure they are not breaching the Data Protection Act 2018.
Also, any intellectual property should be registered, patented, or otherwise protected, to avoid a competitor stealing creations or inventions, etc.
6. Check your employment contract
As well as the legalities of running the side business, it is vital to carefully check your employment contract before you get started. If there are any specific clauses that prevent you from working for another business, it may be necessary to check if setting up a side business would breach your contract of employment.
Even if there are no legal obstacles preventing you from setting up a side business while employed, it may be a good idea to check with your boss or HR department that they are happy for you to do so. If they find out later on, this could create tensions and lead to various complications, both for your business and your employment.
Should you turn a side business into a full-time venture?
If a side business proves successful, there will usually come a point at which you may decide whether to give up the day job and focus 100% on running your startup. But this is a big step and there are various considerations that should be weighed up before taking the leap, including:
- Income – will the business be profitable enough to match your salary from full-time employment, or at least adequate enough to cover essential living expenses?
- Reliability – your side business may be doing well at the moment, but how resilient is it to market changes and threats from competitors? Is it worth giving up the security of employment to run the business full time?
- Time – running a business full-time can sometimes entail having to work irregular hours, which may cause clashes with other commitments such as childcare responsibilities. Also, it’s important to bear in mind that there are additional time demands associated with running your own business, such as administration and generating new sales.
- Responsibility – in general, there are more responsibilities as a business owner than an employee. If you decide to set up a limited company, there are specific directors’ duties that need to be understood and fulfilled. Also, if there are any employees in the business, there are a whole raft of employment rules which an employer must take care to follow to the letter.
- Loneliness – leaving a job to run your own business full-time can feel very liberating, but you are leaving behind the social advantages of having colleagues. The loss of camaraderie and the 9-5 routine can have a negative impact on mental health for some people. It’s important to consider how you will make up for the lack of colleagues to speak to during the working day.
How do you know if you should quit a side business?
Starting up a side business while employed is a good way of dipping a toe in the water of entrepreneurship. But it’s important to be able to recognise if it hasn’t worked out. A couple of the most obvious reasons to cease operating a side business include:
- Lack of profit – if the business is failing to turn any profit, a new strategy may be the answer, but sometimes it’s best to simply cut your losses.
- Stress – occasionally the time pressures of running a side business alongside a full-time job will be too much. Also, if you are not enjoying the experience of running a business, this may indicate that you prefer employment.
If you need to close a limited company which you set up as a side business, 1st Formations can help with its Company Dissolution Service.