Coming up with a business idea and starting a business can seem overwhelming and complicated. There are so many things you have to consider from coming up with an excellent idea to registering a company, all the way to business planning, fundraising and much more.
That is why we have put together this in-depth guide to take you by step by step through how you can start a business. It covers every conceivable thing you could want to know when setting up a business, including:
- Know yourself as an entrepreneur before you start
- Generating new business ideas
- Researching the validity of your ideas
- Testing your business premise in the real world
- Creating an initial business plan
- Setting up the right legal structure for your business
- Understanding your financial, accounting and tax obligations
- Protecting your business from a legal and disaster perspective (insurance)
- Creating an identity for your business including building a brand and website
- Get your business essentials sorted including setting up internet and stationary
- Funding options for starting your business including investment, grants, loans and more
- Devising initial marketing and sales strategies
- Building your initial team including recruitment, management and company culture
- Starting your business whilst keeping a full-time job
I highly recommend that if you are new to starting a new business you should read this guide from beginning to end, but if you want to skip ahead, there’s a table of contents below with quick links to sections and subsections.
This guide is designed for UK entrepreneurs but most of it relates to entrepreneurs starting a business anywhere, only the financial and legal sections will differ significantly.
1. Know yourself as an entrepreneur before you start
Starting a business is a process that requires an enormous amount of thought and careful examination. First, you need to take a good look at your strengths, weaknesses and skills. This will allow you to start thinking about what you can do and what you cannot do. It is important to start here even if you already have world’s best business idea, because you might not have the skills or personality traits to enable you to make it into a successful business. You want to come up with business ideas where you are naturally best suited to be successful, for example:
- A person with a decent level of programming skill is well adapted to starting a web development agency.
- A person that has a short attention span might not want to consider accountancy related businesses.
- An person that doesn’t enjoy speaking to new people wouldn’t consider a heavily client facing business.
These are just three general examples, but it gives you an idea of the thought process. The crucial point is to understand yourself and your team, and if you are well suited to any business ideas, areas of business or specific types of business. It allows you to start coming up with ideas and narrowing down what businesses you could start.
Discover your motivation for starting a business
Before you start a business, you should be absolutely clear about why you are doing it. That may sound obvious, but there are actually many reasons why someone should choose to turn their back on the security of a job and career for the uncertainty of starting a business. So the clearer you are about what exactly you are trying to achieve, the better chance you have of achieving it.
Wealth, power, fame, saving the world? Most entrepreneurs are motivated by a mix of the above although most wouldn’t like to admit it. Understanding what is driving you to start a business is a major factor in determining what type of business you should start. Why? Because when a business you start isn’t aligned with personal ambition, it is much more likely you will fail.
You should make sure from the beginning that your personal goals and drive are compatible with your business, for example:
- Someone who seeks wealth might want to look at companies in the financial services industry, where Fintech valuations and revenues are typically much higher than other start-up businesses.
- Someone who seeks power and influence could achieve this through any form of media business.
- Someone who seeks out fame might be best suited to an entertainment related business.
- Someone who wants to save the world might start a business tackling climate change through renewable energy.
It is important to understand why you are starting a business so you can focus on business ideas that will help you get to where you want to go.
Make sure it’s a good reason to start
In reality, you are unlikely to have just one reason for starting a business; it is likely to be a combination of several of them. So be aware that the aims may conflict with each other. Creating a long-term family business to pass down the generations, for example, may well be incompatible with making a serious fortune, because you may find you need to sell the business in order to realise its full worth.
While it is possible to create a successful business solely to make a lot of money, in reality, it will be hard work if there isn’t at least one other factor acting as a motivator. This is because it can take many years between starting a business and receiving any money from it – if ever – and along the way the hard work required is immense, and the possibility of failure is very real.
Simply pinning your hopes on a future possible pot of gold is unlikely to be enough to sustain you through the difficult times. So make sure you have a good reason, work hard and enjoy the ride!
Understand your entrepreneurial passions
When it comes to starting a business, if you are passionate about it, you will be more likely to be successful. The main reason for this is simple: you will work harder and persevere more on a business you are passionate about, thus be more likely to succeed at it. Often the only difference between an entrepreneur who starts a successful business and an entrepreneur who fails is passion.
Logic dictates that if you want a successful business then you should begin in an area that you already have a passion for. To start figuring out what businesses or areas of business you are or could be passionate about start by thinking about the areas, activities, and things you are passionate about, that is, that interest you and you have strong opinions on, for example:
- Someone who loves to hike might consider setting up a travel business.
- Someone who loves Lego might think about a toy or construction business.
- Someone who spent their whole life with a passion for music might start a company related to sound
When thinking of offline or online business ideas keep in mind that starting any business is hard enough, if you make sure it is one you are passionate about you are much more likely to succeed.
Are you the right age to start a business?
Questions such as what is the average age of a startup founder, what is the optimal age to be a founder and is it possible to be too old/ too young to start a startup, are all often asked. The graph from HBR shows the distribution of ages of the founders of billion dollars, venture capital-backed private companies.
It’s an interesting distribution that undeniably favours those between the age of 20-35. Of course, these $1bn companies are huge outliers and represent a very small dataset of total startups. Having said that, it’s an interesting graph to note as after all, for those of us that start startups, isn’t this the ultimate dream that we’re all swinging for in the long run? For those that fall into this age bracket, the signs are good. Even Fred Wilson, prolific New York based Venture Capitalist was quoted as saying that “tech is biased toward the younger generation” as the article notes.
In contrast to the graph above, the Kauffman Foundation conducted a study and released a report entitled “The Anatomy of an Entrepreneur“. They found the average age of a founder to be 40 years old. Of course, I can think of a number of benefits of waiting until this age to start a company; the most obvious being years of experience under your belt.
Ultimately, age should not be a limiting factor in success. There are pros and cons about certain ages, and some people might have biases one way or the other. Regarding starting a startup often it is down to the circumstances and thought process of the individual. There will always be reasons to not take the plunge but in reality are these reasons even valid?
Your age should be way down the list of factors that you consider if you’re thinking of starting a startup. With startups being the roller coaster that they are, the range of emotions from almighty highs to deep lows experienced by any founder on a day to day basis will dwarf the benefits or negatives caused by the founder’s age. There are many metrics that startup founders can pay attention to at any one point in time. In my opinion, age should not be one of them. What’s your opinion?
2. Coming up with great business ideas
Coming up with a business idea is relatively easy, coming up with a great business idea is hard. It is critical to your success that when starting out you explore as many ideas as possible before deciding on the final one you will take forward.
In this section, we will guide you through the process of finding a great business idea that you can turn into a successful, profitable and valuable business.
Start generating business ideas
It is now time to start coming up with ideas, this is often a long and time-consuming process but have some patience and you will bring to life some fantastic ones. Below you will find advice on how to get started in the ideation process and come up with great business ideas!
Solve a problem that prospective customers care about
Start by thinking about what significant problems you could solve and how. Many successful companies started out on a mission to solve real problems that affect millions of people and provide a solution through their products and services.
For example, Tesla started with the objective of making the world’s cars purely electric and they are well on the way having built a hugely successfully multi-billion-dollar business in the process.
Identify where you provide a better solution
Look for areas where solutions are already available but you can do better than existing companies either regarding efficiency, innovation or cost.
For example, Apple entered the mobile phone market more than a decade ago as an underdog with a new innovative product and are now a market leader. Despite the fact the technology had been available for years no one had brought the level of innovation the iPhone did to the market.
Be cheaper than other businesses
You should look for areas where you can provide significant savings to the customer vs competitors. These types of businesses grow incredibly fast, particularly during recessions.
For example, Poundland is a great example of this kind of business, since its inception its used price as the primary differentiator to its competitors. Through offering the lowest price possible on a big range of consumer products the business has grown to a highly successful high street chain.
Innovate in a traditional slow changing market
Is there a field of business or industry that hasn’t seen much innovation in the last 10-100 years? This is often the case in non-tech industries that are slow to push forward change while the status quo remains profitable.
These industries often have tremendous opportunities to disrupt them with new technologies, innovations, systems and methods. For example, only recently has the taxi industry rapidly changed with the introduction of Uber innovating how we find and hire taxis.
Build a business for a future need or market
Try to think into the future, what will the world look like in 5 or 10 years? Thinking about the future will allow you to think about new markets and niches that may open due to innovations and new technologies.
For example, cryptocurrencies such as Bitcoin in the last few years have grown to be significant markets by themselves with a whole eco-system of technology and infrastructure providers developing around it.
Copy other businesses and be better
It is unlikely, unless you are on the forefront of technology, that your business ideas are unique. Plenty of the world’s biggest companies were not revolutionary, yet they came into markets with developed players and just outperformed everyone else.
You do not have to have the most original idea to create a brilliant business, you just have to do it better than anyone else! For example, Microsoft came out of nowhere and beat every other competitor to become the dominant operating system provider in the early 1990’s.
Turn your hobby into a business
A logical jump is to take a hobby and turn it into a real business. Why? A hobby is something you already know a lot about, clearly have a passion for and you will know where to start. For example, it is logical to go from collecting models to selling models.
Think about a global business
The world is now a very global place, you can have a business in China and operate it from New Zealand if that is what you want. Globalization and technology offer immense possibilities to run businesses in new and emerging markets around the world.
If the conditions are not right for your business model in your home country market look for a country where they are. For example, Rocket Internet built their multi-billion-dollar business by copying innovative business models from developed markets and taking them to less developed markets where they were the only company.
Don’t limit yourself to one business idea
It is easy to settle on one idea but to give yourself the best chance of coming up with a great idea it’s best to pick a few to explore and compare.
If you’re stuck, stop thinking
You can overthink it when it comes to ideation, so if you are stuck stop thinking about it. Many times, when you stop actively thinking about something the solution or idea will come to you later.
3. Research your business ideas
This stage is all about researching your business idea as much as possible to decide if your idea or ideas could turn into a great business. To assess and compare each, you want to have a clear understanding of the points below.
Define & analyse your target market
Is there a market for the business, product or service and is it big enough to support your goals? You should also consider the competitive landscape and know who your main competitors are. Analyse what their and your weaknesses and strengths are, as well as market opportunities and threats. You want a clear idea of the overall market and how your business would fit into it.
See if there’s a demand for your product or service
Is there a direct demand for your goods or will you have to educate customers about the need for your product or service?
Understand your potential customers
You should have a clear idea of who your potential customers are, including demographic data and business details if you are selling B2B.
Have a marketing & sales plan that makes sense
Having a good understanding of how you would reach your potential clients and grow your market share is critical to success. Specifically, understanding what marketing and sales activities and channels will you need to pursue and how.
Make sure your business model will work
Can your business model work given the current market and potential customers? This is often an overlooked point, but many start-ups fail because their business model does not operate.
Find funding for your business
Is it going to cost a significant amount to set up your business? This is a key factor on whether your business could work as it depends on your resources and your ability to raise finance if needed, i.e. Small business grants, business angels, venture capital, invoice finance or bank business loans.
4. Test your business premise
Once you have a few thoroughly researched business ideas it’s time to test quickly and validate if the premise of your proposed business works in the real world. Many entrepreneurs who skip this stage, end up wasting much time chasing ventures that would never work. So now that we have established it is a good move to test your ideas and research, this section explores the different routes to market for testing different ideas.
Be precise when measuring performance
When testing a proposed business, you can assess the performance of any venture in different ways, so it is important to initially work out what you want to measure to gauge success or failure. Here are some suggested measures to get you started:
- How much revenue could you generate/ How many products can you sell?
- How much customer interest can you generate?
- How much press/notoriety can you generate?
Different testing methods
As per the title of this section, you should find and deploy the fastest, cheapest, and most robust way possible of testing your business premises. How you choose to do this largely depends on your business idea, below are some of the most popular methods that fit the above criteria.
Create a landing page and carry out e-mail marketing
If you have services or a specific solution based business and your primary sales channel will be online, this is often the quickest way to test:
- Set up a quick one-page website (for non-technical people Wix is a good solution).
- Make it seem and feel professional (you can get a 5 dollar logo/brand off Fiverr).
- List your services/solutions.
- Add a contact email.
- Find the e-mails of ideal potential buyers and contact them about your service.
Then manage communications and see if anyone is interested, if not ask why and be persistent.
Build an online store and buy adverts
If your idea involves selling products online:
- Create a quick online store (WordPress, Shopify or BigCommerce are good options).
- Add a brand and make everything look professional.
- Add mocked up graphics of your products.
- Add contact details and sort an email.
- Spend £25 on Facebook ads and see how many clicks, sales and how much revenue you can drive.
Set up a market stall and sell
If you are starting a product based business and your primary sales method will be face-to-face, a cost-effective way to test your business is to build initial versions of your product and book a table at your local market or festival.
You can gauge via sales and customer feedback if the premise is a success and gain valuable feedback as to how you could pivot the premise to success if it fails. Innocent Smoothies started by testing their products at a festival before becoming a business (and later being acquired by Coke for hundreds of millions).
Sell over the phone (Telesales)
One of the best ways to get meaningful qualitative feedback is to find the ideal buyer of your product on LinkedIn for example, track down their phone number and call/pitch as much as possible to gather as much feedback and as many pre-orders as you can.
5. Create a business plan
At this point you have chosen the business idea you are going to turn into a business and tested it, now it is time to put together a business plan to outline in detail the objectives of your business and how you are planning to achieve them.
A business plan is a great exercise for sorting out your thoughts and it allows you to plan your business in a structured way, for yourself and so outside parties such as investors or partners can understand what you are trying to achieve and how.
Great planning from the start can be the difference between a business that is successful and well executed and a business that fails. In this section, you will find guidance on how to create a great business plan.
Key elements of a business plan
Your business plan should include many key elements and follow a simple and clear structure. Always aim to create a business plan that anyone could pick up and understand what your business is, what its objectives are and how you are planning to get there; this means breaking it up into clear sections.
An executive summary is an introduction to your plan, its content, and an overview of everything in your business plan. It should provide the reader with a short, concise and clear overview of what your business is and what you are trying to do in no more than two paragraphs.
The readers of your plan will often want to skip to specific parts that interest them; a contents page allows them to navigate quickly to the appropriate section.
Business model and products/services
Here you need to outline your business model and what are the products, services and solutions you provide.
Customer, market and competition
In this section, you need to show a clear understanding of your ideal client, the market for your product, service or solution (also have your market clearly segmented) and an understanding of the competitive landscape, including who your competitors are and where you are in the market in comparison to them.
Marketing and sales
This section is about demonstrating a clear plan from a marketing and sales perspective as to how you intend to achieve your objectives, whether that is scale, revenue generation or some other tactic.
Finances and projections
You want to show your current finances and any projections you have for the business moving forward. Always make sure to be realistic with financial projections, you will have to back them up at some point!
Include a short section about your current team, who they are and their qualifications/experiences. If you have expansion plans for human resources, you should also include them here.
Business plan summary
This section should summarise your entire business plan through key points in bullet point format and provide contact details so a reader can easily get in touch with you.
How to write a business plan
Writing a business plan when you are starting out is often a new, complicated and sometimes overwhelming task. There are however some golden rules you should take into consideration when writing that will make your life a lot easier!
Keep your writing short
Make sure to summarise and keep your writing as short as possible as this will help your plan be very clear. It helps you organise your ideas but most importantly, it makes it much easier for external parties to understand.
Make sure everything is relevant
It is very easy and tempting to include irrelevant information in your business plan. This extra information usually makes your communication less efficient and makes the idea harder to understand.
To get rid of any irrelevant material, once you have finished a section do a quick review and get rid of anything that doesn’t support or add to the main point you are trying to make in that section.
Check grammar and spelling thoroughly
If there’s even a chance external parties will at some point read your business plan, then make your spelling and grammar excellent. As with any document, you lose much credibility and sometimes meaning if there are spelling and grammar errors.
Create a simple mission statement
A mission statement should concisely explain what the overall purpose of your business is, for example, the mission could be: to reduce the impact of plastic waste on the environment.
Set clear objectives
Set SMART objectives by being very specific on what you are trying to achieve across the business and in individual areas.
State how you are going to get there
It sounds simple but many entrepreneurs are not very clear about how they are going to achieve their business objectives, make sure you thoroughly think and create a way for your business to get from point A to B.
Use a realistic timeline
Setting a realistic timeline alongside your activities and objectives is a critical factor when composing any business plan.
How to format and present your business plan
Making sure you have created your plan in the appropriate format can be very important to how it is perceived or used. Here are a few tips on how you can achieve the best format.
Business plan formats
Create your initial document in Word, Google docs or Open Office, these tools are easy to use and you’ll end up with an easily editable file. You can also use Excel to create and update a clear structure, this helps to give you a good overview of the plan. Make sure to use a theme that is consistent throughout the document regarding fonts, colours and design features.
If you must give a copy to an external party, always export the file to PDF, and make sure to have professional graphics in place if desired (if you want to design something graphically complex, Adobe InDesign is perfect for this).
How to present your plan
If you are going to make a presentation of your plan, you need to create a PowerPoint/Keynote version. The presentation format will differ from your business plan in that each page should make one key point with a maximum of other three supporting ones.
Make sure to use simple graphics and focus on what you are trying to communicate (remember you can always provide a full business plan at the end of a presentation to any parties).
Keep your business plan updated
Your business plan should be updated as circumstances and objectives change. If your business is now running, it’s impractical to continually update this document but it should be reviewed and kept up to date over time. Apart from anything else it is a good reflection on where you started and where you are now.
If you are looking for a way to track your progress against objectives, it is best to build a tracker/planner on Excel or use tools like Asana or Trello.
Tools for business planning
Usually, Excel, Word or even a whiteboard is sufficient, but if your business is a little more complex or you struggle with organisation, then using a business planning software makes sense. The best and most popular solutions out there are Asana, Trello and LivePlan.
6. Registering a business
The structure you select for your business depends on your specific needs. In this section, we will take you through the various business structures, their advantages, disadvantages and how you can set them up.
Different types of business structure
There are several types of legal structures you can choose from when setting up a business, we have detailed them further below.
A sole trader is a business-type where one person owns and runs the entire business. It is the simplest business structure you could adopt. It is very suitable for any one-person businesses; this includes independent accountants, web developers and gardeners among others.
Being a sole trader means the individual is entitled to all/any profits of the business but is also liable for any debt/damages incurred. In the UK, there are currently over 3 million registered sole traders, and the number is growing with a massive influx of skilled freelancers.
A limited company is a structure that means a business is a separate entity from its owners. This means the owners are only liable for any business debts to the extent of the amount of money they have put into the business, thus limiting any exposure for business owners beyond their total investment. There are two types of limited companies you can incorporate in the UK.
Private limited company (LTD or Ltd)
In a private limited company, the owners privately hold shares. This is the most common and preferred incorporation structure for most small businesses in the UK. Over 5.2 million limited companies are operating in the UK now.
Public limited company (PLC)
In a public limited company, shares are available to the public for ownership and purchase. A public limited company must have a value of at least 50,000 pounds before it can trade as a PLC.
PLC is commonly used as a structure for major companies after they make an initial public offering (selling a large portion of their shares in the capital markets).
Limited liability partnership (LLP)
An LLP is a partnership structure used by many businesses including vets, dentists, law firms or accountancy firms. An LLP is made up of at least one limited partner and one general partner (there can also be more than one of each), and these partners have different responsibilities and exposure regarding the business.
- On formation provide property or money to a
- Are liable for all debts up to the amount they have
- They have no operation control and can’t actively manage the business.
- They cannot remove the initial investment (property or money) they put into the partnership.
- Are liable to pay any debts the partnership cannot pay off.
- Actively manage and control the operation of the business.
- Can make binding (irreversible) decisions on business matters and for the business.
- General partners can apply for ACS; this is where assets and money are put together and managed on behalf of the partners. The partners end up co-owning the assets but only must pay tax on their share of any profits.
Guarantee Company (LBG)
LBG is a structure used by not-for-profit businesses such as social enterprises that seek a legal structure to operate. This structure is somewhere between a charitable status and a limited company.
In an LBG no share capital is issued, instead, the members act as guarantors for the company. It’s commonly used by trade associations, schools, and other businesses.
Selecting a structure for your business
There is no simple answer to which structure is best for your business, it depends on your business operation and needs. For example, if you:
- Plan to grow your small business beyond yourself (one person) and then sell it, then a Private Limited Company would likely be the most suitable structure.
- Plan to only operate as a one-person business for the near future, then a Sole Tradership would probably be the best structure.
- Plan to start a business that has a significant amount of senior management, capital and that deals in services, then a Limited Liability partnership would be the best choice.
Setting up a structure for your business is not something you do every day, do some more in-depth research and decide what legal structure is best for your business.
Register a limited company
Forming a limited company can be a simple process, but it is also something that should be done very carefully (if you are unsure about something, seek legal advice).
Below you will find an overview of what you will need to register a company, where you can register and other useful details on company formation.
Where can I register my company?
You can register your new company at Companies House on GOV.UK, this process will take you about 30 minutes if you have all the required details ready.
How much does it cost to register a company?
It costs £12 to register a company online (you can pay this fee via PayPal, debit card or credit card). It takes on average 24hrs for your company to be registered.
Details needed for registering a company
To register a company, you will need to have the details below ready:
- A company name (You can find more information on naming your company below).
- Address for the company.
- One or more directors’ names and details (if it is just you that is fine).
- Details of the company shares, shareholding, and shareholders (with at least one shareholder).
- A Memorandum and articles of association. This is a standard document that shareholders create and agree to that outlines the company’s written rules, it’s usually very standardised unless you have specific needs.
- Detailed information on anyone who owns a significant interest or control in the company (this means anyone who owns 25% or more shares or voting rights in the company).
Choosing a company name
When choosing a company name you need to consider legal requirements but also apply common sense:
- Make sure the name you have chosen isn’t trademarked by another company, you can check this via the Intellectual Property Office search on GOV.UK.
- Your name cannot have any profanity in it (that is, rude language).
- Your company name does not have to be the same as your trading name, for instance: your company name could be “Generic media group Ltd” and you might trade under different names for various products the company owns such as “Business magazine, Agriculture magazine…” It depends on your plans, but it can be useful to have a name different from your product or service if you intend to launch other areas of the business, products or services.
- Your name cannot be to the same or too similar to another company that’s registered at Companies House.
- Your business name should be something that’s simple to say, spell and remember.
- Be creative and try brainstorming as many options as you can.
- Test your name and get feedback from your social group.
Ultimately, you should take some time before you decide on a business name.
Setting up a company address
To start a limited company, you need to have a registered business address. A registered address will appear on your Companies House listing and it is where the official post is sent including corporation tax and annual return requests.
You can use your home address, office address or even a PO box. A PO box can be bought from a virtual office provider and is usually a good option if you want a more formal business address from the start (virtual address providers will forward any post onto your home or selected address for a fee).
Creating a memorandum and articles of association
The standard articles of a memorandum document are usually sufficient for most new companies, all you need to do is have all the shareholders read, sign the document and submit it. If you have more complex needs regarding your company’s rules, you should consult a lawyer.
Understanding directors & secretaries
Every company needs at least one director to start, this director or directors form the initial management team of a company. If you are starting a company by yourself, you would need to be listed as a director. You will also need to nominate a company secretary, which would also be yourself if you are the only founder.
Getting shareholding & shareholders right
You want to get shareholding and shareholders details right from the let-go, it can cause a painful situation later if you submit this poorly or even incorrectly, particularly if you take on investment.
A new company with only one director and one shareholder (who are the same person), and a shareholding of 100 ordinary shares owned by this director/shareholder would work well initially.
Register as a sole trader
Registering as a sole trader is a simple process, it just requires you to fill out and submit several forms to the HMRC registering yourself as self-employed.
What details do I need to register as a sole trader?
You only need your national insurance number, a home address and a business name.
Where can I register as a sole trader?
You will need to register as self-employed with the HMRC by filling in the appropriate SA form and submitting it.
Choosing a sole trader name
Being a sole trader, you can trade under your name or a business name of your choosing. If you want a separate business name, it cannot conflict with any existing trademarks, and you will also need to use your name and the business name on any official paperwork.
Deciding on an address for a sole trader
Usually, a home address is fine as this is not made publicly available and many self-employed people operate from home. If you are going to list your business address on a website or anywhere else though, you could consider getting a virtual office or PO Box if you do not have a fixed office address.
Registering a limited liability partnership
Registering a limited liability partnership (LLP) is more complex than most registrations. The details below provide a helpful outline of how you can go about registering an LLP with practical advice.
How can I register a LLP?
You will need to download the LP5 application form from GOV.UK and send it by post to Companies House. All partners in the company must sign this form and it typically takes five days for your limited partnership to be set up.
You will also need to send in a fee of £20 via cheque or postal order at the same time (payable to “Companies House”). As an alternative, you can incorporate the company online through a third-party software.
Choosing a partnership name
The same rules apply to selecting a partnership name as with a company name, see advice in the above, limited company registration section.
Choosing an address for your LLP
The same address rules as for a limited company apply only that your registered business address, for official mail and public listing, must be in the territory where you incorporate initially. For instance, if you incorporate in Wales your registered partnership address must be in Wales. You are free to change this after registration though.
You need a general partner and a limited partner
You must have a general partner and a limited partner to start a limited liability partnership. This cannot be the same person, so the minimum founding team is of two people by default.
7. Setting up finances, accounting and tax
Once you have set up the legal structure of your business, there are several important financial and tax responsibilities you need to figure out.
Opening a business bank account
Before you can start generating any revenue or making purchases, you are going to need to open a business bank account to send, receive and securely store your businesses capital (money).
It is essential to select a bank and business account carefully as it is very likely you will be with the chosen banking provider for the life of the business.
Choose a bank for your business
There’s no simple answer for this, it is best to gather some information on each bank and their offerings and compare to see who’s the best fit. You should look for details such as:
- What’s their track-record in working with small businesses?
- Do they have a range of products and information specifically for small businesses?
- What do other small business customers think of the bank?
- Is the bank respectable, have they engaged in any illegal activity recently?
Once you collect all this information, which you can find online; you should have a good idea of which bank is best for your business.
Select a winning bank account
You also must decide what type of business account or accounts your set up. If you have the wrong type of account, it can significantly affect the cost of business banking. Here are a few things to consider when selecting a business account:
- Do they charge fees based on different transactions, is it a flat monthly fee or is it even free?
- If transaction fees are applied, what charges are applied to each type of transaction?
- Do they provide transaction fee free accounts for certain types of transactions such as online or retail?
- Does the bank offer any complimentary benefits such as insurance, software, or other benefits if you open a certain account with them?
- Do they offer free business banking and accounts for a period? For new ventures, banks tend to offer from 6-24 months free banking.
It will take you a bit of time to gather information on bank accounts and compare it, but it is worth doing as it can save a lot of money, time and headaches in the future.
It can be difficult to change banks
Once you are a few months or years into trading, it can be challenging to change banks and even to change your accounts, as you will likely be processing many payments and purchases through your bank and accounts at any one time.
If you change banks or accounts you will need to update individual partners, suppliers and customers, which is a very time-consuming task. It usually ends up being severe enough that many businesses do not switch banks even if they have an unpleasant experience.
Understanding your accounting, tax and filing responsibilities
As a shareholder, owner or director you will likely be responsible for filing some form of accounts, filing paperwork and paying various business taxes to the HMRC on an annual or more regular basis.
Understanding your basic accounting, tax and financial responsibilities from the start is essential to running your business properly, being legally compliant and avoiding hefty fines from the HMRC.
Record your financial transactions
Most businesses are legally required to keep an accurate and up to date record of their finances, this means recording expenditure, income and any other financial transactions of the business. Having up to date records helps to make financial plans and enables you to file your accounts relatively quickly as you have all the relevant data ready for your accountant.
Prepare & file annual accounts
Limited companies and limited liability partnerships are required to submit accounts annually. These accounts are a record of your businesses expenses, revenue and financial transactions across the accounting year.
Your corporation tax bill will also be worked out based on these accounts. It’s typical for an accountant to prepare these accounts based on your accounting records from the year, depending on how organised and up to date these records are this can be a simple or complicated process.
Filing a confirmation statement
Limited companies and limited liability partnerships need to submit an annual confirmation statement. This statement is simply to check that the information that Companies House has about your business is correct and if any is incorrect or out of date, you will need to update these details.
Register for self assessment
Self-assessment involves the annual filing of a set of simple accounts covering your income during the year. The HMRC uses this to assess the tax you need to pay personally. Sole traders, company directors and limited liability partners will need to register for self-assessment (company directors will also need to know about PAYE and dividends).
Sole traders can also use any business-related costs to reduce their income and overall tax bill. One final exception is that if your limited company is not-for-profit, then you do not need to file self-assessment.
Register for VAT (Value Added Tax)
If your business is likely to have more than the VAT threshold in annual sales, you will need to register for VAT. This is a flat rate tax you must charge on top of any goods or services you sell.
On the positive side, once you’re VAT registered and have your VAT number you can purchase products from other businesses VAT free.
Register for corporation tax
If you have a limited company and it is trading (this means making any financial transaction), you will need to register for corporation tax within three months of starting your business or beginning to trade.
You will be assessed for corporation tax through your annual accounts and will need to pay a flat rate tax based on the profits generated by your business. You can find more details on paying corporation tax here and further details on registering for CT here.
Understanding business rates
Business rates are a tax levied on business premises by the UK government and delivered by local authorities. They are charged annually on business properties including shops, factories, offices, warehouses, bars and more.
If you own or rent commercial premises, it is likely you will need to register for and pay business rates. However, if you are running your business from home it is unlikely you will need to pay business rates.
Tell Companies House and HMRC of any changes
If your business details significantly change you will need to inform the relevant authorities, for instance, for instance; if your registered address changes you will need to tell Companies House/HMRC straight away.
Hire an accountant
When it comes to starting any small business, it is advisable to have an accountant. A good accountant will save your business substantially more money than they cost to hire. Specifically, an accountant will ensure:
- You pay the right amount of tax.
- Ensure you meet, file and pay any major tax deadlines,e. annual statements, accounts, corporation tax…
- Have expert financial advice and information at your service.
- Ensure your annual accounts are correctly compiled and submitted to the HMRC.
In summary, a good accountant will make the financial aspects of your business much easier to handle and save you much money in the process.
Choosing an accountant
The ideal accountant for a small business that’s just starting up is a local independent accountant who will give your business finances the time and attention it needs and probably be less costly than a major firm.
How much does an accountant cost?
Accountants will either ask you to pay a lump sum annually or more commonly a monthly fee that will cover the ongoing work. The amount typically depends on how well you can negotiate, but it will likely be between £30-150 a month depending on the complexity of your business financial matters and filing needs.
Sole traders however, probably only need an accountant once a year for self-assessment and this should cost between £80 -200.
Choosing small business accounting software
Unless you are a sole trader with a few transactions going through your business each year, yes, you need small business accounting software, and there are two primary reasons:
- If you are a limited company or partnership, your annual accounts, which you must legally submit to the government yearly, require all your records from the annual accounting period.
- So you can accurately track all your financial transactions and the financial health and future of your business (including costs, revenue, and profit).
It cannot be stressed enough how important it is to keep up to date and accurate financial records from the start. Failure to do this can result in losing a lot of time, money and in some cases criminal prosecution.
8. Protect your business
Once you have taken care of all financial matters, it is necessary to protect your business from the unpredictable by taking care of certain legal and insurance issues.
Find a solicitor or law firm
Most companies will not need to hire a legal advisor initially, except if they want advice on company set up or have some specific legal matters that need attending. However, at some point in your businesses life-cycle, you will need some form of legal support, whether that is drawing up contracts or protecting your business interests in court.
Make sure that if you hire a legal advisor at some point, you always agree on an hourly rate and on the amount of time required in advance for any work.
Getting intellectual property protection in place
Intellectual property (IP) is intangible property that is the result of creativity. Protecting your IP as a business can be critical to protecting your business, brand and products from damages that come from people using your intellectual property without your permission.
This section explores intellectual property rights and protections you can put in place to protect your business’ intellectual property.
Trademarking a name and brand
A trademark is a legally registered symbol, word or words representing a business that legally owns it, protecting the business from anyone else using this name or symbol.
For new ventures, you will want to trademark your company name and brand, this makes sure you legally own your brand and company name, and prevents anyone from misusing it.
Patenting an idea, technology or process
A patent is an exclusive right granted for a product, invention or process that provides a new way of doing something or provides a new technical solution to a problem. Applying for a patent is only relevant for new businesses that have invented innovative technology or product that could be copied by others. A patent grants your legal ownership of this invention and the exclusive right to it, thus providing your business with protection.
The relevance of copyright law
Copyrighted work means that other businesses cannot use your written or creative work without permission. Copyright is primarily employed by book publishers, theatre companies and other types of entertainment/information based companies who need to ensure works are not reproduced without authorisation.
Make sure you have small business insurance
Business insurance for a new business can be an absolute lifeline that provides much-needed financial and legal support when the unexpected happens. Whether you must recall a dangerous product or have an employee endure an accident at work, having the right insurance can be the difference between a business being able to cope with a disaster or having to close. With that in mind, this section gives a quick overview of the major types of insurance you might consider for a new business.
Public liability insurance (PLI)
PLI protects businesses against losses suffered by people or customers injuring themselves or sustaining property damage due to the activity of business, it is one of the most common types of small business insurance. It is of particular importance if you operate physical premises and regularly interact with customers in a third party or business owned premise.
Professional indemnity insurance (PII)
PII is for businesses and professionals that provide advice or services to customers. It protects your business against any claims for damages or legal costs which arise due to act omission or breach of professional duty in the daily course of operations. It actively protects your business if advice or a service provided negatively affects a customer.
Employers liability insurance (ELI)
ELI protects a business that employs staff from financial losses incurred when a staff member experiences a job-related illness or injury. Workplace injuries can be extremely costly for an employer if they are liable. ELI offers protections against this and it’s particularly relevant for business who have many staff involved in physical work on their behalf, i.e. manufacturing, event running…
Product liability insurance (PLI)
Product liability insurance protects your business from damage to property or personal injury caused by products your business/company has supplied or sold.
Key man insurance (KMI)
Key man insurance protects businesses from the loss of a key employee such as a CEO by paying out a large sum on the event of their death or incapacitation. It is effectively life insurance against anything critical happening to a key employee. If your business is entirely reliant on one employee or a small group, this insurance can often help save the business from bankruptcy in a disaster situation.
Landlord insurance (LI)
Landlord insurance protects business owners who own property from losses sustained as the result of renting that property. If a business owns its office and rents it out to other companies, this type of insurance will protect you from damages caused by a tenant.
Trade credit insurance (TCI)
Trade credit insurance is insurance that protects private companies from their customers being unable to pay back a debt due to bankruptcy, default or insolvency. It’s most relevant for companies that operate under a B2B model and have a range of key customers who use offered credit facilities.
Director’s and officers liability insurance
D&O insurance policies can protect management from personal liability in the event a claim is made against them for wrongdoing. For example; if a director knowingly or unknowingly communicates incorrect financial information that leads an investor to lose money or make a poor decision, resulting in a claim against the director.
Business contents insurance
Business contents insurances provides coverage for your equipment, tools and even stock on your business premises (you can also get specialist stock insurance if you carry high volumes of goods), to cover the cost of replacement or repair commonly in the event of fire, flood or theft.
Choosing the right business insurance
As with buying any product or service make sure to shop around and compare prices and clauses. With insurance, you will want to read the small print very carefully and clarify the conditions around your insurance policy (to make sure you a policy covers losses or damages thoroughly).
Regarding selecting an insurer, look for firms who have an excellent reputation and long record of accomplishment in insuring small businesses.
9. Create a brand and identity for your business
Now that you have protected your business adequately, it is time to create a public facing identity. This is how you present your company to the world including branding, setting up a basic website and creating a business e-mail address.
Create a professional brand for your business
Having a professional brand is critical to any business that wants to stand out in today’s competitive environment. That does not mean the branding process needs to be costly or time-consuming, there are just a few key things you should consider for creating a professional brand:
- Create a logo (Keep it simple and hire a designer on Fiverr, online logo maker, or a cost-effective design agency).
- Create a colour scheme for your business that will be used across all promotional and company assets (you can use a colour selector to find a palette and it’s also a good idea to look into basic colour psychology before you choose).
- Come up with a slogan for your company if you think it is useful.
- You can also create a symbol that can be used as a recognising mark of your company when you do not want to put your full dress logo, such as on a product (it is typically included in your logo).
It is important to take your time though and explore a few different branding options before settling on an initial brand.
You need to create a website for your business
Whether you are a retail store, a chemicals company or a modelling company having at least a basic website is a requirement for business in the 21st century, customers expect you to have a website and expect to be able to find it easily. Your website should:
- Include and show your company/business details including address, phone number, name, and logo (if you have a limited company number it is also a legal requirement to list it here).
- Provide a clear description of what your business is/does.
- Provide details of your products, services, and
- Provide a business e-mail or contact form that enables prospective customers/outside parties to reach you easily.
You can add many more things to your website, this is just the basic information you need to include. Now, how do you create a website?
How to create a website for your business
Creating a website is not nearly as complicated as you might think it is. There are many different types of software, website builders and helpful information that allow you to build a simple website for your business.
Easily build your own website
If you do not want to take on this task or are unclear on how to do it, you can always outsource it to a freelancer, but there is a far better and cheaper option available. Website builders have come to the stage where you can build your entire website quite simply through one provider with no prior experience. Companies like Wix, Squarespace, Weebly, Wix, Shopify or BigCommerce offer very simple to use tools so that you can often have a simple website up and running in under an hour. However, if you decided to explore the possibility or even build your own website, we have outlined the main steps you will need to accomplish this with helpful tips.
1. Purchase a domain
A domain name is your public address on the internet, it is the URL that appears at the top of your browser on any website, for example: www.cocacola.com. The first thing you need to do is purchase a domain for your business. Typically this domain would be your business name, if this taken, try different variations.
You can buy a domain name from popular domain registers such as GoDaddy or Name Cheap (try to make sure you purchase a .co.uk or .com domain, these are important trust indicators for anyone visiting your website).
2. Purchase website hosting
Web hosting involves renting all or part of a server (online computer) where your website will be stored, think of it as renting virtual land for your office. When looking for a reliable website host, you will want to review a few things before choosing a hosting provider:
- What’s the reputation of the hosting company?
- What’s the cost of hosting compared to other providers?
- What’s the host’s uptime compared to other vendors? (% of time their servers are live.)
- Do they provide one-click installs of LAMP/LEMP and CPANEL/WHM and WordPress (Read further on for descriptions.)
If you are in a hurry, popular and cost-effective web hosting companies include Bluehost, GoDaddy and 1&1.
3. Point your domain name to your server IP address via DNS
The Domain Name System (DNS) is the internet’s mail routing system in a way. When someone types the domain genericmedia.co.uk, your hosting company’s server will respond by telling the computer that genericmedia.co.uk website is stored on a particular server with the IP address of xxx.xxx.xxx.
Many hosting providers will automatically generate the correct DNS record, pointing your web address to the server IP address when you install your website, but a number do not. If you need to set this, you will need at an elementary level to add an A record pointing your domain name to your correct server address (you can typically find your DNS panel in your hosting provider’s portal).
4. Point your domain to your web hosting company
Now that you have set up your domain, hosting and correct DNS records it is time to point your domain at your web hosting company. This is done by changing your domain’s nameservers. Start by looking for the nameservers/DNS in the domain company’s portal.
Once you have found it, you will want to swap out the current nameservers for the ones your web host has given you and click update (if you do not know what these are, do a Google search on “nameservers” and your web host’s name, they usually pop up!).You now need to wait 5 – 48 hours for the nameserver change to propagate across the internet.
5. Install LAMP & WHM/CPANEL
Depending on your hosting company this may already be set up, if you see anything that says ‘enter cPanel’ or ‘cPanel’, it likely already is and you do not have to do anything! For other hosts, you will need to install a LAMP stack (the underlying technology used by the server) and WHM/CPANEL, the web hosting software that allows you to set up your website. There are many steps by step guides providing information on how to do all this for different hosts across the web.
6. Install WordPress
WordPress is often the go-to choice for flexible content management systems that allow you to build and manage websites with little technical skills. Installing WordPress usually requires a one-click install from cPanel under Softaculous or another auto-installer (if you do not have an auto-installer you will need to download and transfer WordPress via FTP, this gets a bit more technical). Make sure to note down your login details as well!
7. Purchase & install a website theme
Login to WordPress at yourwebsite.co.uk/wp-admin. You should have a new up and running website, now you need a design in the form of a WordPress theme. These themes (designs) give different aesthetics, structures and control options depending on which one you get.
You can find a free theme or purchase a theme to suit your needs. There are particularly good paid options built for many types of small businesses including blogs, restaurants, builders, and many more. You can find themes to download via WordPress or go to paid providers like Themeforest. Once you have one, you will need to upload and activate your theme via the appearance-themes panel in WordPress.
8. Add all your information
Now it is time to create pages and add all your business information.
- Create your pages (Home, about, contact us).
- Add your logo.
- Add your product, service, or solution listings/details.
- Add a menu.
Congratulations you have built a basic website, now it’s time to get a professional e-mail address.
Create an e-mail address for your business
Once you have a website, you are going to need a professional e-mail address where prospective customers and external parties can reach you, this means that instead of using:
Having a business branded e-mail address is critical to engendering trust and is a general standard for most businesses in the UK.
Fist set up an email address using G Suite or another third party email service. Then you’ll need to make sure your email is routed correctly which is done by updating your MX records. To change your MX records you will need to look for your hosting company’s DNS panel.
Once your MX records are updated any email received by your server for your domain will be sent to Gmail (or the email service provider you’ve chosen) i.e. any mail received by genericmedia.com would be forwarded to your email. This is easier to do than it sounds!
10. Buying the business essentials
Getting the basic essential setup for any new business is not glamorous, but it is very necessary. Whether that is sorting the internet, phone, utilities or purchasing technology among many other things, here’s a quick guide to getting the essentials right.
Setting up business broadband
Fast and reliable internet is a necessity. Whether you need to sell online or communicate with customers, the internet is a vital component for most new businesses. Here are some guidelines for choosing a secure, reliable and fast internet provider and package:
- Make sure your connection will have a minimum of 20mbs download speed and 6mbs upload speed (Broadband or Fibreoptic).
- Check reviews online of each company and the different tiers/types of internet packages they offer.
- Make sure the contract length is no longer than 18 months (you usually negotiate heavily when your contract comes up for renewal, lowering the cost).
- Verify that the company has a responsive customer service team rather than an automated machine or poor customer service. This can be a nightmare when internet problems occur and has a been a big problem over the last year, particularly in the UK.
- If you live or work in an area where broadband or fibre is weak regarding internet connectively or it doesn’t connect at all, consider a 4G internet contract and an antenna as an alternative solution to get fast and stable internet.
Most of the above is quite logical, but it is easy to miss things in the hubbub of starting a new business.
Getting a business phone line
Having a landline number for your business is still a necessity for having a legitimate business image from the start and for having a fix and reliable number where customers can reach you on.
If you own or rent a private office, it is easy to set up a business line with your phone package. However, if you do not, you can still purchase a business landline in London and many other cities that will route to your mobile phone, allowing you to take calls via that number and make calls online using that number.
Finding office space
Apart from working from home, there a few different options for entrepreneurs looking for space to start and run their businesses.
Rent a co-working space
Co-working spaces allow you to flexibly rent office space or an individual desk at a relatively low cost compared to traditional serviced or private office options. They also offer an environment designed for start-ups with a great community of like-minded entrepreneurs.
Apply for a business accelerator
Accelerator programs provide seed investment, mentorship and office space for a limited time to start-ups and other small companies. If you are a technology business there are many accelerators where you could apply for in many major cities in the UK.
Rent a business incubator office
Incubators are effectively low-cost office space that offer some level of community and network. Non-for-profit companies, charities or universities typically run them.
Rent from another local business
Many large to medium sized businesses that find they have excess space are often open if approached by a smaller company about renting unused space in their premises. It is a great source of extra income for the landlord business and often a flexible renting agreement for the tenant business.
Rent a serviced office
If you are starting with a large team and have investment ea serviced office is probably the best option for you. A serviced office will not be cheap but you can usually choose the layout that best suits your team on a particular floor or area of the building.
Selecting business stationary and signage
It may be hard to believe but for limited companies there are specific laws you must obey regarding the details you include on signage, stationery and promotional material.
Choosing a sign for your business
It is a matter of British law that you must display a sign showing your company name and your registered business address as well as any other address where your business operates in your business premise (if your home address is where your business is based you do not need to display a sign).
Office supply and stationary options
When purchasing official company stationary or producing promotional materials such as letters, forms or your website, you must display your company name, company number, registered address, and the country your business is registered in (Scotland, Wales, England, or Northern Ireland). If you also decide to list a director’s name on materials, you must include all the directors’ names if there are more than one.
11. Find funding for your new business
Most businesses require some source of funding to start. This section covers the primary sources of financing available to small businesses with the relative advantages and disadvantages.
Some of the world’s most successful companies have been initially self-funded. The upside of this option is you do not lose any control by involving any outside party. The downside is that depending on the business you are starting, you may need more capital than you have or it may run out very quickly.
Friends & family
Many entrepreneurs receive their initial funding from friends and relatives in the form of an investment or loan. This is because in many cases you will not have to pay this money back if something goes wrong or you can agree on preferable terms when dealing with friends and family, usually both!
The upside is that your family or friends are unlikely to try and bankrupt your business to retrieve their money if you cannot pay them back within the terms set. The downside is you can put relationships in jeopardy if things do not go to plan and you cannot pay the money back or if expectations are poorly managed.
Business grants are free funding (money) awarded to qualifying businesses. A significant amount of public and private grants are available for new businesses; typically they are designed to support businesses starting up in impoverished areas, to boost the economy or to promote technological innovation and research.
The best place to start looking for small business grants is your local Council website. They typically will have all the details of local grants available and of some national ones as well. Grants tend to range from £1,000 up to £5,000,000 in size, the amount depends on the grant (it is also common for payment to be made in stages based on achieving certain conditions).
The plus side of grants is it’s free money with the downside being that applying for grant funding is often a complicated and time-consuming process, and the probability of obtaining one is not very high. Still, many businesses in the UK receive grant funding each year, it is still worth a shot!
Business competitions offer the chance to win free funding for your business, typically between £500 and £50,000. Large corporates, universities, or local councils usually run them to gain exposure, support the local economy or as a PR and marketing stunt.
Competitions are often underapplied for and applying is usually far less time-consuming than applying for other funding sources like grant funding. The downside is you might not win and lose a lot of time and energy in the process, depending on the requirements and conditions of the competition.
An angel investor or business angel is a wealthy individual (commonly a former entrepreneur) who is willing to provide money for your business in exchange of a percentage shareholding in your business. A business angel is usually a good option for businesses who are a little further along than just starting out, as these investors typically want to see some growth/traction in your business before investing.
However, some entrepreneurs do raise business angel finance initially ranging from £30,000 to £150,000 (typically under the Seed Enterprise Investment Scheme or EIS). The downside of this option is you’re losing some control at an early stage. The upside is that it’s a much quicker way to raise money than through VC or grant funding. Angel funding usually has few requirements and angel investors at this stage are primarily investing in people much more than they are in the business!
Venture capitalists are professional investors who invest significant sums of money into many companies with the aim of making a return on their overall portfolio.
At this early stage, venture capital unfortunately is only applicable to highly technological companies that operate in fields such as life science and biotech. These types of companies require huge initial investments from the start and can justify this funding by the promise of massive innovations and breakthroughs in technology and science that could yield considerable returns.
The relative downside of venture capital is that it is hard to raise and, as professional investors, they will actively take ownership and control of part of your business. The upside is that you can raise a considerable amount of money very quickly (if your business already has much traction, venture capital could also apply to you).
Crowdfunding is a relatively new form of investment, it allows you to raise small amounts of funding from many people. This can be done by selling equity or offering a reward or product in a presale crowdfunding campaign.
Crowdfunding campaigns typically require an enormous level of marketing to be successful in most cases. The upside is that a campaign gives you the chance to test if people are receptive to your business and if you crowdfund goes well, in some cases, you can raise your funds in 48hrs (of course, after having prepared for months). Crowdfunding platforms like Seedrs and Crowdcube offer equity solutions, and Kickstart and Indiegogo are the go-to choices for pre-ale/rewards-based crowdfunding campaigns.
A simple business loan means you borrow an amount of money from a bank, person or lender and agree to pay it back over time, such as in a timeline with interest.
Although loans offer a flexible way for businesses to raise capital, in most start-up situations they are not an ideal form of funding as you’re immediately taking on a risk where if you cannot pay back the loan you could lose your business and any personal wealth you have (depending on the liability).
Given that banks do not lend as much as they used to to new businesses, the start-up loans scheme detailed below is likely the best option for anyone starting up if you want to raise finance this way.
Getting a Start Up loan
The Start Up Loans Scheme was launched in 2012 by the British government. It made available £150+ million pounds of public money to entrepreneurs in the form of a favourable, low-interest loan up to the amount of £25,000. Eligibility and facilitation of a start-up loan are carried out by delivery partners who assess each business plan or business case.
The loan is typically payment free for the initial year where you only pay nominal interest payments each month, with the bulk repayment starting on the second year and being paid back over as much as five years (be aware that although the loan terms are very favourable the actual debt obligation lies on you).
Over the last few years, many businesses have been successfully launched by entrepreneurs who took startup loans. It can be a good funding option depending on your situation.
Business credit cards
You occasionally do hear stories about entrepreneurs maxing out business credit cards to fund their new business that quickly becomes successful. What you do not hear a lot is about most entrepreneurs who max out their credit cards and go bankrupt.
A business credit card is one of the worse forms of finance to use for starting a business. The interest rates, penalties, and complexity of this kind of short-term finance only make it useful to trading businesses which are profitable and need a flexible credit facility.
A business overdraft is a flexible lending/credit facility you will agree with the bank or another financial institution. An overdraft allows you to borrow a set amount of money on an ongoing basis or until the bank withdraws the facility. You pay an agreed monthly rate of interest on top of anything you borrow.
It is not a good form of finance for starting a business and should only really be used by trading profitable companies. It is specially useful for businesses who have seasonal businesses or cashflow issues due to longer client payment terms or other reasons.
12. Creating a sales and marketing strategy
Sales and marketing are the beating heart of any new business, for a business to be successful it needs to be innovative at marketing and effective at selling. When it comes to starting a business, this means thinking about preparing your product or service for sale, how you plan to go to the market and what channels and systems will be employed to reach and close customers.
Getting a product or service ready for sale
Once you have a product or service ready to be sold, you need to start packaging it for the market, this means considering differentiation, positioning and pricing.
Positioning your offering
Positioning is all about identifying your product’s/service’s key attributes and how you are going to communicate them to the customer. It is about defining who you are and what you are offering in a way that resonates with your prospective customer.
Understanding your USP (Unique selling point)
Differentiating your offering from your competitors is all about identifying and showing your USPs (Unique Selling Points). This means thinking about where you offer superior functionality and value over your competitors and how you can communicate this through your marketing message.
Setting price at the right level
Pricing a product or service is tricky, it is often unclear for new entries into a market what pricing strategies you should implement, so here are few ways that will help you to calculate a fair price:
- Work out your costs per unit.
- Work out the profit margin you will be making per unit/per hour.
- Gather pricing information on your competitors’ products or services.
- Find out what the customer is willing to pay. This will require market
Once you’ve done your research and pricing analysis, it comes down to what you think the market will bear combined with what you want to make per unit or per hour for any product or service respectively.
Choosing a route to market
Once you are ready to go to market, you need to figure how you will get there. This means choosing the best route to market; this could be online, through fixed retail, wholesale, even selling through a third party or a mix.
Selling online could be in the form of an online shop or a subscription software platform (SAAS). The internet offers small businesses complete control over their route to market. Many new businesses will choose to sell directly to their customers through the web as it provides fantastically low overheads with little required investment compared to starting a physical business location.
Selling via a retail shop
A retail store is a public place where customers can go and purchase from your business directly. Retail stores give you a guaranteed audience of passing customers depending on the site. This type of sales route is perfect for high-volume product-based businesses, but it also works for services, i.e. travel agents, insurers…
Wholesaling offers businesses the chance to sell their products in bulk to suppliers or retailers who will then go and sell directly to the public through their own sales channels. The profit margin from this model is usually smaller given that there’s another party involved, but it does offer the potential for selling substantial orders and generating significant revenue.
Selling through an agent or affiliate
Hiring an agent or affiliate on your behalf means they will find and connect you with potential customers, thus doing most of the marketing and some of the sales work for you. You will however usually have to pay a hefty commission to the agent when a customer they refer converts or a fixed fee on a per lead basis.
Selecting marketing channels
Once you have chosen a route to market, selecting the correct marketing channels to generate interest and customers is critical. There are many different channels and you have to find the most cost-effective and high-return channels for your business. It can take some time and testing.
Email remains the core way people and businesses communicate online. Thus, email marketing (reaching potential customers via email) is one of the primary marketing channels for generating customers and sales. This type of marketing could be done through newsletters or cold sales emails, and it is one of the online marketing channels available with the highest return on investment.
Pay per click (PPC) advertising is one of the most popular forms of online marketing. It typically involves using paid display and search advertising via Google and other networks to reach potential buyers and drive them to your website or landing page.
If PPC campaigns are well targeted and managed, it can be a highly efficient and reliable method of generating business. It is important to note that social media and Facebook advertising also now accounts for a huge amount of marketing budgets for many businesses.
Social media marketing
Social media is one of the newest and best ways to reach potential customers. Whether it is Facebook, YouTube, Pinterest, LinkedIn or others, there is a range of social media platforms that are useful for effectively targeting and reaching your ideal customers. It is time-consuming to build and maintain an account, but in the long term it has proven to generate a significant return on investment for many brands.
Written content can be an excellent way to reach customers via online search. If you have access to a good writer and your business is primarily online, one of the best and cost-effective ways to reach your customers is through organic search. Out of all forms of online promotion, natural search traffic is the highest converting regarding sales, it is particularly useful for promoting your website to potential customers.
Posting a letter
An old-fashioned method, direct mail marketing is still used by many companies today to inform potential customers about their offering and drive sales. It is particularly useful for service-based companies who have complex offerings that need to be described well, i.e. pensions, life insurance…
In the UK you may be asking yourself ‘how can telesales even be a marketing channel anymore? No one has a positive experience’. However, you might be wrong, many businesses still rely heavily on telesales for large swathes of their marketing and sales budgets, and the return is still substantial, particularly in the telecoms industry.
Build a sales process
Creating an effective sales process is about taking potential customers generated by your marketing efforts and turning them into paying customers.
With sales and marketing inextricably linked, it is important that your sales process will highly convert the leads that your marketing delivers, otherwise marketing is a waste of resources. This section covers the assets you will need, the pipeline you will need to set up and how to create a great customer service team.
Building sales assets
Sales assets are the documentation and document-based promotional material used in the selling process, for example, this could mean leaflets, brochures, PDFs, pitch decks and much more. These materials are critical to a salesperson as customers will often ask for a presentation or written document during the sales process.
These assets demonstrate key features and advantages of any product or service. It is imperative to have these assets ready, looking professional and well-structured for your sales team to use.
Building a sales pipeline
A sales pipeline is at the core of any sales process, it is a system that continuously tracks the stage of the customer. This pipeline allows sales teams and managers to see where prospective customers are regarding the sale and to look for efficiency gains and problems that need correcting in the sales process.
A typical sales pipeline is just a set of stages going from A to Z, A being the first contact, Z being when the sale closed (there can be further steps if you include cross-selling or up-selling as part of the same process). To manage this pipeline businesses will typically use a software-based CRM (customer relationship management) system. It is crucial to the sales process to have a structured pipeline set out so you can ensure every potential sale is tracked and there is maximum conversion.
Create a customer service team
One of the most overlooked areas of sales is customer service, with many organisations seeing sales and customer service are separate functions. This leads to a lack of focus on proper customer service will dramatically increases the amount of customers lost and thus the long term profitabilltiy of any sale.
This means that from the start it is critical to building a strong customer service framework and team to minimise the loss of any clients and maximise the longevity of clients or repeat purchases. This all contributes to the sales bottom line.
13. Building a team for your new business
Most new businesses will start with a small team or begin to grow one very quickly. Thus, businesses and entrepreneurs need to learn early on how to effectively recruit and manage their team, while developing a great company culture and themselves as leaders.
This section is here to guide you through the initial setup of what will become your business’ human resources department, covering recruitment, management, company culture and self-management.
Brilliant recruitment practices are linked to business success
Don’t hire anyone until you absolutely need to. The work and responsibility that come with employing another person is tremendous. When you do get to a stage when you need to recruit, it is important to make sure you take the right approach to finding and employing the best person or people for the role and for your business.
Attracting great employees
The start of a recruitment process is about finding and getting the best potential candidates to apply for the position you have open. Companies who want to attract great candidates should:
- Offer a competitive remuneration package (salary, benefits, share options).
- Use their company’s vision to inspire a candidate to want to be part of the enterprise.
- Show career progression possibilities for the candidate.
- Demonstrate a progressive, diverse and exciting work culture to the candidate.
Beyond the basics of attracting great employees, it is often about highlighting how your offer is better than other organisations’ offerings, i.e. if you cannot compete on salary, compete on offering responsibility and progression.
Create a strong recruitment process
Once you have attracted a good pool of potential candidates having a strong recruitment process is key to making sure you end up hiring the best candidate. At a minimum, this means having a process with:
- A clear timeline and stages for candidates.
- Unambiguous criterion for what you are looking for and how you will be assessing candidates.
- At least 3 interviews (ideally with different members of your team).
- A step for checking previous work references and thoroughly vetting candidate claims.
A poor recruitment process may leave you with the worst candidate. A strong recruitment process will enable you to work down to the best candidate efficiently. Companies who choose to invest time and resources into the recruitment process will always outperform those who do not!
In-house recruitment vs outsourcing
Outsourcing recruitment to an agency and in-house recruitment both have advantages. When it comes to choosing there is no easy answer, the best method depends on your business situation. However, to help here are some the key advantages/disadvantages of each.
- A professional agency will find candidates that exactly fit your profile.
- It eliminates the need for an extensive in-house recruitment team.
- It can be very expensive (the agency will usually take a fee between 15% and 25% of the candidate’s total first year annual earnings).
- It enables you to control and optimise all aspects of the recruitment
- It’s usually cheaper than hiring an outside agency.
- It will require the use of an internal team and resources.
When it comes to choosing, smaller companies who are profitable will often choose to initially outsource the first steps of the process to attract candidates and then do in-house recruitment and asses the candidates themselves.
Creating a management ethos and system
Excellent management is essential for the success of any business. From the very beginning your management team or even just you as an entrepreneur need to create a clear management structure, a positive work environment, and build a company culture that will support the business and its people as you grow.
Set management structures
Getting a management structure in place early on is critical to any small business that hopes to grow. This ensures that business’ policies and objectives initiated at the top will be carried out throughout the structure and that there will be accountability for their progress. In practice, this means having clear structures, roles, objectives, roadmaps and responsibilities, tracking employee performance, having team building exercises and feedback sessions, among other areas.
Create a positive work environment
Having a productive workforce is inextricably linked to creating a positive and supportive work environment. This means that from day one, managers and CEOs should make creating and maintaining a positive work environment a core company objective. This could mean holding office social events, providing large desk spaces, having clear HR policies and career progression, offering flexible holidays or any other initiatives that employees would value.
Build a great company culture
People are the primary resource of any business. Your founding team may work hard, be passionate and close-knit but how do you make sure that culture of excellence and responsibility scales with your business?
Very simply, by clearly outlining and documenting your company culture and making sure it is one of the main objectives of your business. Company culture should be considered in the hiring process and each new employee should be introduced to it. It should not be something unspoken but something at the core of the business.
Making sure you are compliant with employment law and taxes
Building a great team can be complicated and not just regarding recruitment and management, but also regarding understanding and adhering to your tax and legal responsibilities when hiring. You need to be aware of the legal, tax and pension responsibilities that come with employing people.
Knowing employment taxes
When hiring anyone in the UK, you will need to pay several monthly employment taxes on their behalf including national insurance contributions for each employee. These taxes are typically paid via PAYE; this system is the primary mean of collecting employment taxes from UK companies by the government (speak to your accountant if you need to register for PAYE).
Understanding employment law
Employment law in the UK is strict and well set up to protect both businesses and employees; there are several key areas all employers should be aware of:
- You must pay each employee at least the minimum wage.
- After two years of continuous service, employees are entitled to a redundancy package if they are forced by your organisation to leave their job without cause,e. workplace closure or need to reduce workforce.
- Females employees are entitled to 52 weeks of maternity leave and men up to 2 weeks if they have worked longer than 26 weeks for the business.
- The maximum number of hours anyone can work for an employer in a week is 48 hours, unless they agree to work further and sign a release.
- Employees are entitled to at least 28 days paid holiday a year (this is prorated for part-timers).
- You cannot unfairly discriminate by race, gender, disability, or any other factor regarding recruitment, pay, promotion, access to training, or termination.
- Unfair dismissal applies after two years of continuous employment and companies can be fined by having to provide compensation to employees wrongly terminated.
It is important to be aware of employment law and the aspects that affect you as an employer.
Providing a pension for employees
As of 2018 the Pensions Regulator has made pensions mandatory for all employees who work in the UK, are aged 22 years or over, and earn at least £10,000 a year. This means that as a small business and employer, you are legally required to provide a pension scheme for all staff that meet the above requirements. Note that to contribute to this payment scheme you can choose a private business pension provider.
As an entrepreneur, one of the difficult things you will often face is managing stress, fatigue, and pressure while balancing work and life. This is common as there is an enormous level of responsibility upon you as an entrepreneur and leader. In this section, we cover how you can mitigate this by creating a support network, engaging in the community and finding mentors to guide you through the perils of entrepreneurship.
Build a support network
Whether it is friends, family or colleagues, having a strong support network around you is critical. This system will help to support you and keep you going through the ups and downs of the entrepreneurial path, make sure not to neglect this network!
Meet the start-up community
Start-up communities and networks in the UK and across the world are prolific and well established. Engaging and becoming part of these communities in your local area is an excellent way to meet other entrepreneurs, share stories and exchange ideas and advice.
Find a mentor
Finding an industry relevant mentor is one of the best things you can do when starting any business. If your mentor is knowledgeable in your sector, he or she will be able to provide advice and guidance. It is true what they say, great entrepreneurs learn from other people’s mistakes.
14. Starting a business in your spare time
If like many reading this article you have a full-time job and can’t afford to quit your job to start straight away, have no fear. In this section, you can learn how to start a business and make it successful in your spare time without having to leave your job. One way of reducing the risk of starting up your own business is to hold onto your day job in the early days and work on your business in your spare time at evenings and weekends.
It’s an appealing idea because if your business venture fails then you still have your job, and if it succeeds then making the transition to being your own boss will be a lot less risky. In fact, there are now so many people running businesses from home in their spare time at evenings and weekends that there is even a name for them – the 5 to 9 ers.
Perfect businesses to start in your spare time
- An internet-based business which does not require your constant physical presence for it to function
- A business that can outsource many of its functions. Husband and wife Brent and Marilena Shaw run their online luggage business Swiss luggage.com in their spare time while both do full-time day jobs. They outsource the packing and posting of orders to a fulfilment company, which takes delivery of their stock and stores it in its warehouse. During the day a call centre handles their customer enquiries.
- One that allows you to communicate with customers by email rather than by phone, so you are not limited to conventional office hours
- Don’t start a business that will be in competition with the company you work for, and don’t start one that uses information or data provided by your employer, as you will quickly run into legal issues.
Hide your entrepreneurial intentions
Downplay your entrepreneurial intentions in front of your boss. No matter how well you get on, no-one likes to feel that their employee’s attention and focus is elsewhere. Provide information solely on a ‘need to know’ basis and never bring up your business venture in conversation unless you are specifically asked about it.
Only work on your business in your spare time
Don’t give your boss any reason to clamp down on your business venture. Be scrupulous about doing your day job competently. Only work on your business in your own time and never use your employer’s resources for your business – don’t take stationery, don’t use the office phone for your business phone calls.
Social life on hold
Put your social life on hold, and try to get the support and understanding of your family – you can’t do a full-time job and start a business AND see as much of friends and family as you used to.
Maximise the number of hours
Make the most of every hour you have available to you – When Chris Orrell was starting up his company Hotelstayuk.com offering cheap hotel rooms to employees of large firms, he would go down to the car park every lunch hour to make calls to potential clients on his mobile phone. His business now has a turnover of millions.
Work on your business every hour
Don’t underestimate how much time you still have available – there are 168 hours in the week, so even allowing for a 40 hour a week full-time job and eight hours sleep a night, that still gives you a potential 88 hours left in which to work on your business.
Make sure to get some rest
But don’t sacrifice sleep. Make sure you get enough sleep every night as over tiredness will make you feel ill, run-down, grumpy, short-tempered and lead to poor judgement and bad decisions.
Advice from owners of successful spare time entrepreneurs
Janan Leo, is a typical 5-9er. During the day she works as a product development manager for Virgin Trains. As soon as she is finished there, she switches to running Cocorose, which makes folding shoes for women to wear while commuting. She started the company, which she runs from the spare room of her home in north London, in 2008 with £3,000 of savings. She works every evening from 5 pm until at least 11 pm and every weekend and now sells hundreds of pairs of shoes a month in boutiques and through her website. She may never see her boyfriend and barely get any sleep but for Leo, starting a business this way and running it at home has one huge advantage – it has minimised the financial risk. She says: ‘I lie in bed at midnight watching the orders come through on my BlackBerry.’
Steve Emecz, runs his own book company, MX Publishing, in his spare time from home while holding down a demanding full-time job as the business development director for Venda.com, an e-commerce support company. Steve, whose business publishes around 50 titles, including books on Sherlock Holmes and neurolinguistics, says: ‘I process urgent orders in my lunch break and regular ones in the evening. I have an outsourced warehouse that picks the books and ships them — it is all technology-driven and web-based. The authors all have day jobs themselves and so want to talk to me in the evening anyway, and the distributors do everything online. I have my e-mails sent directly to my BlackBerry, and I use Skype a lot.’
15. A little bit of entrepreneurial inspiration
If at this stage you’re feeling a little overloaded you should be but don’t worry every one of the worlds most successful businesses started from the smallest of to-do lists. to remind you that’s its entirely possible to do here are 10 case studies of extremely successful businesses that came from very humble beginnings.
This business started by selling t-shirts, sweaters, shorts and undergarments in a bakery-themed retail shop. The initial investment was $6,700. The firm is now worth $3.8 Million. The first store opened in 2005 and the founder, Johnny Earle, soon found himself on the list of ‘Best Entrepreneurs 25 and Under’ in 2008.
Adventure Life offers group tours and vacation packages for its customers. In 2008, it had revenue of $11 Million; the start-up costs, however, were very low. These included $3,000 for brochures, $11,500 for ads in 1999 and £33,500 in 2000.
Paragon Space Development
Paragon Space, which is now worth £8 million in 2008, started with an initial investment which includes $30,000 for computers and lab equipment, £600 per month for office and lab premises, and $20,000 for yearly travel.
The #1 selling yoghurt in the United States was founded in 2005 by Hamdi Ulukaya. However, his ex-wife claims that he stole the recipe and paid $40,000 for it. The founder used a loan of under $1 million to buttress the initial start-up costs. The company is now worth $1.1 billion.
Sweet Leaf Tea
With its current value of $12 Million, Sweet Leaf Tea was founded in 1998 with a $100,000 initial investment. The company broke even in its third year and reported revenue of £300,000.
Earning revenue of $22 Million per year, Tokyo Joe’s was started off in 1996 with an initial cost of $330,000. Tokyo Joe’s is famous for consistently bringing nutritious and delicious food to customers’ tables.
Tarte Cosmetics offers a wide variety of make-up products including brushes and body products. It was established in 1999 by Maureen Kelly in New York. The start-up cost was $18,000 and now the company grosses $12 million (2008 figures).
This company changed the way people send gifts. They specialise in fresh fruit arrangements and offer a wide variety of speciality fruit gift items and gift boxes. Tariq Farid founded this company in 1999 with an initial investment of $100,000 and the company is now worth $19.4 million.
Now worth over $200 Billion, Mark Zuckerberg started the world’s biggest social network when he was still in university. According to various reports, the idea was allegedly stolen from twins Cameron and Tyler Winklevoss who eventually sued Mark.
We have saved the best for last: ZARA. It was founded in 1975 by Amancio Ortega. The big retail giant opened up several stores across the globe. The founder’s estimated worth is reported to be $65 billion.
Now that you have made it to the end, hopefully, you’re well on your way to starting and beginning to build a successful business, good luck!