Start a service-based business

Service businesses are the simplest and cheapest way to start. You sell your expertise, time, or skills directly to clients. Startup costs are typically under £5,000 and you can generate income from week one.

The main challenges are pricing your time correctly, managing capacity, and protecting yourself with proper contracts and insurance.

Setting your rates

Most new service businesses underprice. Use this formula as a starting point:

1. Calculate your annual income target (what you need to earn)
2. Add business costs (insurance, software, marketing, travel, accountant)
3. Add employer NI and pension if applicable
4. Divide by billable days (typically 130-150 per year, not 220)
5. This gives your minimum day rate

For example, £40,000 income + £10,000 costs = £50,000. Divided by 140 billable days = £357/day minimum. Round to £375 or £400.

Research what competitors charge. If your rate is significantly below market, clients may question your experience. If above, you need clear differentiation.

Writing client contracts

Never start work without a written agreement. Even for small jobs, a simple contract protects both you and your client. Include:

• exactly what you will deliver and what is excluded
• milestones, deadlines and what happens if either of you causes delays
• how much you will be paid, when and how (deposits, stage payments or payment on completion)
• who owns the work product, you or the client
• a cap on your liability at the contract value or your insurance cover
• the notice period and any kill fee for early termination

Template contracts are available from professional bodies and law firms. Have a solicitor review your standard template once — then use it consistently.

Managing your time and capacity

The biggest risk for service businesses is overcommitting. Without proper capacity planning, you either turn away work (lost revenue) or take on too much (poor quality, burnout).

• Use a time-tracking tool from day one, so you know how long tasks actually take rather than how long you think they take.
• Quote 20% more time than you think you need, because scope creep, client delays and unexpected complexity are inevitable.
• Marketing, invoicing, bookkeeping, emails and networking take 30-40% of your working week, so do not schedule client work into that time.
• When you are fully booked, offer clients a place on a waiting list rather than rushing work or turning them away for good.