The Freelance Rules #8 - keep on top of your business

It's important to start out as you mean to go on in your microbusiness life. If you're just passing through, on the look-out for another in-house role, there's probably little point in operating as anything other than a sole trader. It's the simplest way to administer your business - but still needs the discipline to keep control over your financial affairs and to set up the necessary insurances and protections to ensure you're covered for the work you - and should anything go wrong.

If you're set up to remain a microbusiness, it's worth considering whether you need to establish limited company status or, if you're working with someone else, a partnership agreement. It's essential to have a formal arrangement if you're more than one person - you may think your working relationship with your partner(s) will always be terrific. But what if it's not? What if something goes wrong or things turn sour? What if another person in the business wants to move on? You need to know your legal standing and have a plan in place if you suddenly have a stack of projects to deliver, but no-one else to make it happen.

Of course, many businesses start from one or two people and suddenly have three, then four, then eight then 10.....and in the last few years may have been trimmed back to a few or a couple. Clearly if you intend to grow the business, set it on a proper legal footing as early as possible. Being a limited company can be a hassle in terms of keeping accounts - you need a properly qualified/registered accountant to audit the business each year (even if you're turning over tuppence), but it gives more options for growth - and also still seems to hold sway both with banks, if you're looking for finance, and with clients. With most services procured through purchasing teams these days, it's actually much easier to pick up business if you are a legally registered entity. If you're just Jessica Bloggs sole-trading, you may well find it far harder to get on a preferred supplier list, no matter how excellent the service you provide.

Equally, if your clients are big and expect to pay VAT on invoices, it's probably worth registering - even if you fall short of the threshold where you have to. If you're an anomaly in a purchasing process, things are far more likely to go wrong. VAT is more bureaucracy - but it's worth being registered if it helps you get paid the right amount when you expect it.

Most microbusinesses hate business administration - we'd rather be out there doing the work. But it's vital to keep on top of your financial affairs. If you miss that VAT deadline; don't pay HMRC or slip beyond the overdraft (even though it may not be your fault and down to the vagaries of cashflow), your credit rating will soon start slipping and black marks will start appearing on your credit rating. Business health is something procurement teams love to check - so when pitching for that project you'd love to do, the last thing you want to explain is why your business might be flashing up amber or red on a procurement health check.

Don't make false economies: in my case, I pay the rather excellent Amazon Office Management to keep my books on the straight and narrow. Equally, Leapfrog is insured to the hilt in case something happens to me or Jac or if there are any problems with our work (no problems on either count in 11 years). We've never had to claim on any of the insurances, but at least can go to work unworried that the business is at risk.

Cashflow, especially in the past few years, is never too far from the forefront of any microbusiness' mind. But my advice is to get to know not just your clients, but also the people who physically are responsible for paying the bills. We all rail against bureaucracy and a culture that aims to keep money in the biggest organisations for as long as possible, but I tend to find that the individuals actually working in the accounts payable teams are a pretty good bunch. The worst possible thing to do is to blame the inconsistencies of a payment system on the person at the other end of the phone. Much better to find a way to work things out.

It's harder to establish a working relationship with your bank or the taxman - these days they tend to be faceless machines and loyalty appears to count for little. The best bet is to set achievable parameters for paying tax or repaying any borrowings and move heaven and earth to work within them. And, if things go wrong, get on the phone fast. You may not get a lot of sympathy, but you'll generally get a way to move forward.

Running a business is about doping significantly more than the service you're paid for. It's rarely sexy, but it's essential to get the basics nailed as early as possible in your business life.