Hi, this is my first post here, so 'hello' to start off with.
Did the same thing as what you're planning on doing about a year ago so thought I'd give some advice on what I've learnt myself...
DON'T DO IT!!!
Seeing as you've decided to do it anyway, here goes....
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1. Hosting - e.g. recommended hosting companies to use to host your customers' websites, and what to look for / be wary of?
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I'd look for a basic reseller account to start off with just to get you going. There's no need to go all out and get yourself a dedicated server because you really don't know what your demand is going to be.
I started off with a company (and still have an account with them now) called
http://www.aventurehosting.co.uk
They seemed to do a variaty of packages that included a smallish good value reseller account that could easily be upgraded when we started getting more customers.
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2. Contracts etc - how legally binding do you need to make the whole thing when you agree to take on a job for someone?
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ALWAYS get your client to sign something. Always take a deposit up front (about a quarter of the final price). This is very important.
You can find some books containing legal document type templates from your nearest Staples store which has proved invaluable for everything from contracts to invoicing and even if you just use it for some basic grounding, you will find it usefull.
Ahhh.... The famous question.
The answer? How much do you think its worth?
I usually work on the basis of how much I plan on earning per hour, then how many hours I think the job would take. Then stick on any expenses and overheads and add on about 10 - 20 % becauseprojects always run over or client always want something tweaking which takes up more time than you anticipate.
Hope I've helped to give you a few ideas.
Ian AKA Subversive