Sole trader or limited company?

Written by Stu Roberts

(founder of the Trowel Talk coaching program for plasterers)

Given most plasterers work alone or with a labourer do we really need to form a limited company?

If your end goal is to build a multi million pound plastering empire and take over the world then you'll need to separate yourself from your business and create a separate entity so working as a sole trader probably isn't for you..

But what if you just want to earn really good money and create a good life without employing half a dozen lads and scaling a big business?

Many plasterers believe that a sole trader business isn't a ‘real’ business.

Big shot business coaches and accountants tell us that we must protect ourselves and go limited and we follow this advice without question because part of us believe these people are smarter than us..

But are we overlooking the most profitable and flexible business model available for plasterers?

Let’s deconstruct the sole trader business model so you can decide for yourselves whether you have been lied to..

The facts..

Money is the name of the game for any business after all that's why most of us go self employed in the first place.. so let's get straight into the nitty gritty.  Naturally we want to be in a position that minimises risk but allows for maximum profit.. so can the sole trader model deliver this?

This can be a confusing topic.

We are led to believe that big jobs equal big money and going limited offers us a degree of prestige and unless we go limited nobody will take us seriously in the market and we could miss out on opportunities..

This might be true if you are looking to take on large commercial projects but most plasterers understand that more money can be made in the domestic and home improvements markets where we can cut out the middle man and target smaller high-profit jobs that we can handle alone or with a labourer.

If you plan to work with other businessess or work on a subcontract basis, then these companies might be impressed or more accepting of a limited company or a company that is VAT registered for example.. this is because it reduces risk and costs their end.. but do these factors benefit the domestic plasterer in any way? Are we financially better off when compared to the sole trader model?

Customers in the domestic arena are not arsed what structure we operate and are only concerned about our reputation and credibility and usually couldn't care less whether you are limited or not and certainly won't appreciate VAT registration as this means more expense for them.

With this in mind, for a tradesperson planning on undertaking only domestic jobs and the odd commercial job the sole trader business model could fit perfectly and earning potential here can be very, very prosperous. In this position you can command a high income while keeping costs significantly lower when compared to a limited company.

Can sole traders employ staff?

Contrary to popular belief sole traders can employ staff members. There is no need to change structures in order to employ an apprentice or labourer for example.

Employing staff is something that should only be considered once fundamental business systems are in place. Full video training lessons can be found inside the coaching program

No risk no reward

I talk to many plasterers who tell me that their accountant or business coach told them to go limited because this way their house will be protected if they go bust and owe money to suppliers.

On the surface this seems good advice, particularly if you are a large business that relies heavily on a line of credit doing commercial projects. Or maybe you have borrowed large sums of money for your business and are looking for protection should things go bad in business..

So for some businesses the advice to go ltd is the best advice, but my question here is should a domestic tradesmen or plasterer be borrowing or owing large sums of money in the first place?

The answer is simple. No he shouldn't.

Usually the reason he does this is because he hasn't set up booking deposits or payment terms and so is using his own savings or credit cards to pay for his customers renovations.

This is a bad strategy because things can quickly get messy and you will keep running out of money so the natural thing to do is to approach your supplier and ask for a line of credit.. or borrow money to bridge the gap between starting the job and getting paid.. Problems arise when your customers don't pay you and now your debt journey begins..

In my coaching program I stress to all self employed plasterers not to borrow money for their business because they simply don't need to.

99.9% of plasterers boot strap their businesses.

In other words they do a job and use part of the profit to purchase tools, equipment and so on.. When done properly there is literally no start up capital needed so you don't need to borrow money at all as the business is built organically bit by bit over time using it's own income.

The same strategy is used to cashflow jobs but in reverse..

When you book in a plastering project for a customer you should be using the customers money to pay for the running of the job and also your income. You should not be using your own money.

Continuously running out of money is very stressful..

Using your own money to pay for people's jobs will mean that some days you will have money but most days you will be broke and waiting for payments.

With our household bills sky rocketing and coming out of our banks weekly, this means we need weekly income.

When it comes to our income and more importantly cashflow, The most effective way of operating as a tradesmen is to take booking deposits on your jobs and to ensure that the amount you take upfront covers the materials but also covers your income until the next payment is due for invoice. This is a key component in my coaching program and ensures you NEVER run out of money in your business and NEVER need credit.

I think you'll agree that once your deposit system is locked in, the sole trader business model becomes more attractive because not only is it the cheapest and most flexible model to operate but you now have cash pouring into your business regularly and so you are no longer at risk of financial ruin.

Your accountant fees will be much higher..

Although your tax liability can sometimes be lower, the accountancy costs involved in operating as a limited company are significantly higher than a sole trader business this is because your accountant has more work to do such as payroll processing and annual corporation tax etc..

Sole traders do not pay corporation tax and have simpler annual tax filings, you will need to complete a self-Assessment tax return once a year. Sole traders also keep all post-tax profits, potentially offering more financial benefits than ltd company models.

Mind your own business..

One of the great benefits in working as a sole trader plasterer is the financial privacy. As a sole trader, you have total control over any business assets and profits and you are free to withdraw money at any time.

When running a limited company, you cannot simply withdraw funds from your business bank account whenever you want. You must record all income received by the company and all money paid out by the company. You also need to factor in business taxes to determine how much profit is available to withdraw at any given time.

Limited companies also require more administrative work such as additional paperwork, necessary meetings, as well as a number of extra regulations that must be met. Ultimately if you go limited your business becomes a separate legal entity, distinct from you as its owner. Limited companies also need to register with Companies House and file annual accounts and reports, while the paperwork for sole traders is quick, simple and relatively stress free.

Oh, on the subject of stress..

Toxic growth..

Now I'll tell you the stuff the ‘gurus’ don't like to talk about..

Most business growth advice for the trades is bullshit and most trades lads will never scale up a multi million pound business because deep down it's not what they want.

Most plasterers I talk to love being on the tools but just want more family time and more profit. Believe it or not you can get that working as a sole trader if you target the right jobs at the right prices. You don't need to scale or employ dozens of workers.

If there’s one path certain to lead to workaholism and a nervous breakdown it's scaling a plastering business. Some of the most stressed, burned out and time poor people I talk to are the ‘scalers’ (plasterers who have employed lads and scaled up and now just chase work 24 hours a day and never see their kids)

Don't take this wrong guys.. I'm all for growth but first we have to define growth and what growth means to us instead of trying to emulate what others are doing or trying to reach a financial milestone just to gratify our own ego.

Growth for most means a bunch of vans on the road, employing 10 lads to do the plastering work while you cruise about in a soft top pricing up million-pound jobs with a massive smile on your face..

Sounds good?

Unfortunately its B.S

Many spreads avoid the sole trader model because they have a fantasy that they are going to build a massive plastering business and earn millions of pounds but only work an hour a week..

Let's cut the shit. We all want more money and we all want to work less right? But most of us were not good students at school.

Why?

Because we didn't like doing boring shit all-day and sitting at a desk doing paperwork..

But that's exactly what you will be doing if you do scale and come off the tools. Most of your time will be spent chasing jobs, dealing with customers and costing up. Basically all the jobs plasterers hate the most. We want to be on the tools transforming houses!  That's why we became spreads and not accountants, quantity surveyors or salespeople.

To us that's fuckin boring.

Bigger isn't always better is the theme here guys. A trap we can fall into is believing that in order to earn more money we have to employ people, bring in more jobs and scale but this often leads to increased stress, less free time and is not actually necessary to earn more.

Although building a large scale company and creating jobs for people is a positive thing and a worthy goal, for most plasterers they do not fit well into this entrepreneurial role which is pushed onto them by coaches who tell them they need staff so they can come off the tools.

I've spoken to countless plasterers and tradespeople over the years who say they are miserable after scaling up and many of them end up scaling back down again and going back to working on the tools and feel happier for it.

Take this screen shot taken from ‘Off the Tools’ for example..

To summarise..

• The sole trader model offers the most flexibility and the lowest accountancy costs

• Positive cashflow eliminates the financial risk associated with the sole trader model

• Privacy and freedom - Sole trader earnings can be accessed anytime and are private.

• The sole trader structure is ideal for the domestic plasterer

• Sole traders can employ staff

• You don't need to scale to earn more profit

Getting off the tools isn't for everyone and it doesn't guarantee financial happiness or a big income but it's still the narrative that gets pushed by guru’s even though these people never seem to employ teams of staff themselves! but continue to tell trades lads how easy it is and almost try to shame us into coming off the tools by comparing our earnings to a multi million pound business that we can't remate with at all. We are made to feel as though being on the tools is somehow wrong but what they don't get is that we actually enjoy being on the tools and transforming old wrecks into beautiful spaces. We are proud of our work and proud to be plasterers.

Not all of us want to swing a briefcase and drive a porsche. Most of us are much happier swinging a hammer and driving a beat up van and we can earn bloody good money doing so.

That's what my coaching program is all about , maximising profit, creating more free time without the need to scale big and employ staff. It's called the specialisation model.

Specialising in a niche skill will enable you to earn more in less time and most lads find this is a much better and healthier strategy compared to scaling and chasing status.

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