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In the UK, HMRC have created some tests to determine whether you are in business of your own account, one of which is that you have a business plan that gets updated regularly. Initially in response to this I started writing one but haven't got very far with it. I been working for myself successfully for a few years now without having a business plan and am wondering whether I should even bother? Legalities aside, what advantages or extra opportunities might having a business plan in place bring to a freelance business?

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If you already know what you want out of your business and how to go about it, you already have a business plan. Perhaps not formalized and written down, but one nonetheless.

There are several things you can get from putting it down in writing:

  • You have a comparison point - something that you can use to compare the vision to the reality and that will allow for course correction.
  • You can clarify your thinking by putting in on paper. Seeing the plan in writing can help visualize issues and faults with it and finding any holes in your thinking. It may show that the business is not actually viable the way you envision it.
  • Once on paper, you can show this to others and get feedback. These can be relatives, colleagues and prospective investors (not to mention HMRC...).

These are all tangible benefits for your business strategies - of course, you can easily have a successful business without the above and the simpler the business model, the less the need to formalize the business plan (for example many one man IT freelancers are just one man contracting - but is that a business?).

  • Generally, I agree to the answer above. However @Obed it seems you are missing that fact that this is specifically in question to the HMRC's test to determine if one is in business for services or if one is in the business of service. [See this article from HMRC] (hmrc.gov.uk/manuals/esmmanual/esm1011.htm) and this from Contractors UK – LAK May 31 '13 at 11:38
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    @LeslieatAcmeConsultancyLtd - You seem to miss the "Legalities aside" focus of the question. – Oded May 31 '13 at 16:53
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Short Answer: It depends

Longer Answer: It depends on whether you, your business or your business's future direction require one.

A business plan is just that: a plan. It identifies a way from here to there with the steps in between. If you (and your business) are happy the way you are, having a Business Plan stating "No changes" is a waste of paper!

Whatever you do, do not try and run your business based on HMRC's propoganda. Their IR35 track record is based on Fear, Uncertainty and Doubt - and pretty much their initial decision is "Caught".

Should you truly feel that a Business Plan will help determine that you are IBOYOA then make sure it is realistic... a "War and Peace" epic of how you'll change the world will only raise an eyebrow if you are still operating as an agency bum-on-seat

And (to go with the Eisenhower quote) the paraphrase of Helmuth von Moltke the Elder's thesis: "No plan survives contact with the enemy" - so keep it up to date!

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    Drat... don't have "Tag Create" privileges. IBOYOA = In Business on Your Own Account. "Bum on Seat" = self-deprecating term for jobbing contractor akin to temp. – Andrew May 31 '13 at 9:05
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Short answer yes, but a business plan helps.

Long Answer

There are two traps that come from business plans, IME: Not having one, and following one closely. This seems contradictory but it is not so much. As Eisenhower said, "Plans are nothing; Planning is everything."

The major point of preparing a formal business plan is to think through all of the major facets of your business, write them down, and look at the major issues that may come up. If you are creating a business plan for yourself what you can get out of the process is clarity regarding your business, what the options for promoting it are, etc. Now, here you are not writing it down for investors. You are writing it down for yourself, and thinking through all of these (how would you describe the market? What options do you have to reach the market? Which options should you start with?) gives you an advantage.

However, having a plan is worse than not if you slavishly follow it. Chances are, if you put it on the shelf and don't look at it for a year, having throught through all the issues, you will find that your business follows, generally, the trajectory of the business plan (because both are a product of how you think and the clarity that comes from doing the plan will benefit your business). The issue however is that life does not unfold according to our plans. Unexpected opportunities may come up. Things that we thought would be keys for success fizzle and businesses need flexibility. I can't tell you how many times those things have happened to my business in my 8 years of self-employment. You work around them based on what you need at the moment, and when you come back to your plan in a year, you will find you have made more progress than you thought. This is true regardless of such setbacks. I have again often been amazed at how much of my business plans I made progress on during more difficult times of my business, and this has usually benefited me greatly.

The process I recommend for the self-employed is as follows:

  1. Write a formal business plan. Target 20-30 pages.
  2. Put the business plan on the shelf. Don't look at it for a year.
  3. Every year, read, review, and revise based on what happened the previous year.

To recap: What you get out of a formal business plan is a clear view of what options you have and what you can do to achieve your goals (and you should write a business plan with the goal of thinking through these). Don't expect the universe to cooperate, but the process of writing one brings a great deal of clarity.

  • +1 for not following the plan too closely. As you say, the future is never certain and one could easily miss opportunities if one sticks too rigidly to a plan. I think it could be a beneficial thing to write to provide some clarity on potential marketing and/or revenue channels that I hadn't previously considered – levelnis May 31 '13 at 6:52
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    When I write a business plan for myself I generally follow the following approach: 1) survey of the market, 2) What people need, 3) What I am offering, 4) How to promote, and 5) the nitty gritty (financials, etc). I find this gives me the best value. If I am writing for someone else though this may be different. If you want to bounce ideas back and forth, happy to chat about it. – Chris Travers May 31 '13 at 7:00
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If we speak about the formal definition of the business plan, I don't see a way it could apply to the freelance activity. You don't sell anything, you don't produce any material goods, you don't hire people (if you do so, it's no more freelance activity).

However, if you take the business plan in more common-language meaning, the business plan for freelancer would be similar to the business plan for regular employee. I would rather call it career planning. Your costs and investitions are the things you learn and the time it will take you to reach certain point in which you can sell your services to the customers.

Such business-plan for freelancers could look like that (example for Poland):

1) Market analysis. The business contacts with China are more and more intensive and there are too less people that speak both Polish and Chinese fluent.

2) I need about 3 years full-time learning to learn Chinese fluent.

  • monthly cost of course materials/consultations - 300$
  • monthly living costs - 500$
  • 6 months practice in China - 12000$
  • overall - 36000$

3) An average translator is doing monthly:

  • 100 pages written translation, avg. 15$/page
  • 40 hours oral translation, avg. 25$/hour
  • so I will earn on avg. 2500$ monthly (2,5x more than average wage)

4) That investition allows me to earn 1500$ more that now, so the invested 36000$ will return in 2 years

So the business planning for freelancer isn't much more different than the business planning of average person.

  • "You don't sell anything": huh, don't you sell services ? Don't you have to invest in equipment, marketing, training... ? Don't you need to balance charges and earnings, predict income, define a strategy... ? – Harry Cover Sep 27 '15 at 19:03

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