How to start a business

Want to turn your hobby or brilliant idea into a business? Self-employed people make up 15% of the UK workforce, and it’s relatively straightforward to start up online. If you’re thinking of biting the bullet and setting up your own business, there’s lots to organise. Follow our 12-step guide to get your enterprise off to a good start.

Written by

Alex Hasty

Insurance comparison and finance expert

Posted

7 MAY 2021

4 min read

Step 1: Draw up a budget

As with any major financial decision, it’s important to create a budget if you’re thinking about starting a business. This will give you a realistic idea of all the costs involved in getting your new venture up and running. These costs might include:

Creating and maintaining a website
Advertising and marketing materials
Renting business premises
Equipment including tools, computers and software
Buying or hiring a van
Employing staff
Any additional spending to buy any stock

It helps to start small if you can. Are you able to run your business online without a physical premises? And can you manage without hiring any staff for the time being?

Step 2: Carry out market research

You’ll need to think carefully about who’s likely to buy your product or service, and who you’re competing with for business. Carrying out research is a good way to gather vital information about potential customers and businesses already established in the area you want to get into. Ask yourself these questions:

Who is your target customer base?
Who are your competitors?
What’s the market rate for products or services similar to yours?
What’s your business’ unique selling point (USP) – how will you stand out from the crowd?

Based on your market research, be honest with yourself about whether your start-up business idea is realistic and achievable, or if you need to adjust it a little, to make sure it’s a success.

Step 3: Pick a name for your business

Unless you’re simply using your own name to trade, this is something you’ll want to put some serious thought into, as it can have a huge impact on how your business is perceived.

Choose a business name and logo that reflect your brand and personality. It must also be one that isn’t already being used by someone else. If you’re setting up a website, you’ll need a domain name, which can cost from as little as £4.99 a year.

Top Tip

Make sure your business name is internet-friendly. Think about how it will look as a web address when all the letters are merged together, to avoid potential embarrassment.

Step 4: Create a detailed business plan

A business plan is a roadmap for how to structure, run and grow your new enterprise, with detailed costings and projections. It enables you to set out your earning potential over the first few months and years, rather than just crossing your fingers and hoping for the best.

You’ll need a business plan if you’re looking for a bank loan or potential investor to help fund your venture. A typical business plan includes:

A snapshot of your business
A description of your product or service
Organisational structure
Market strategy
Customer analysis
Competitor analysis
Financial information
SWOT analysis (identify strengths, weaknesses, opportunities and threats)

Step 5: Work out how to finance your business

With a budget and business plan in place, the next step is to work out how much money you’ll need to start your new enterprise.

Some businesses cost very little to start up, if all you need is a computer. But if you don’t have enough money to launch your start-up, you’ll need to find some extra cash from somewhere.

You can apply for a Government-backed start-up loan if you’re over the age of 18 and live in the UK.

Angel investors are another option to raise finance. They are wealthy individuals who want to help a fledgling company but will look for a high return on their investment.

Or you can go down the traditional route of applying for a business loan, but you might struggle to get funding without a proven track record of trading.

Step 6: Decide on a business legal structure

Are you going to be a sole trader, partnership or limited company? The legal structure you choose for your business is very important, as it will affect your accounting requirements, how much you pay in taxes, how you’re allowed to withdraw profits and your personal responsibilities.

Sole trader – most self-employed people are sole traders because it’s the quickest and cheapest way to start a business. You’ll need to complete a self-assessment tax return every year
Partnership – if you want to work alongside someone you know well, you can share profits and responsibilities by setting up a formal partnership
Limited company – this is a private company owned by its shareholders. You’ll need to register with Companies House and appoint one or more directors. Profits from a limited company can be drawn as a salary or as dividends.

Step 7: Register your business with HMRC

If you’re setting up your own business, you’ll need to register as self-employed with HMRC. You’ll be enrolled for self-assessment so you can pay your own taxes.

You pay tax and National Insurance on your earnings after the end of the tax year it applies to. You’re allowed to claim expenses for things like office, travel and website costs.

Step 8: Choose your business premises

Decide where you want your business to be based. Obviously, if you can start it from home, it will really help to minimise your start-up costs. And you can claim some expenses when running a business from home, including for utility bills.

If your new business needs physical premises, think carefully about location and how much space you need. Shop around for good-value sites through local commercial property agents and seek legal advice before signing a commercial lease. Also, remember to take into account the costs of running a business premises, for example, rates and utilities, and charges for cleaning and security services, as required.

Step 9: Apply for licences and insurance

Keep your business legal by making sure you have the licences and permits you need for your particular industry. Examples include a licence to sell alcohol or an environmental permit to dispose of waste.

You’ll also need to have the right business insurance in place, like public liability insurance, business contents insurance and van insurance.

And employers’ liability insurance is a legal must have, if you employ anyone outside of your direct family.

Step 10: Create a website and get online

Depending on your budget, you can either create your own website or pay a web designer to do it for you. Even if you don’t sell online, having a professional-looking website can help you to attract customers.

You should also make sure you have a presence on social media to help you engage with potential customers. Marketing yourself is crucial because if people don’t know you exist, they won’t buy from you. It’s a good idea to network with as many relevant business people as possible, so they get to know about your business idea. And talk it through with family members and friends early on, to get their trusted feedback.

Step 11: Set up an accounting system

One of the least glamorous but most essential aspects of running a business is bookkeeping. You’ll need to keep a record of all payments entering and leaving your business, so you can pay the necessary tax. You could be fined by HMRC if you’re not able to produce up-to-date financial records if they ask for them.

There are plenty of software accounting solutions online that will do the hard work for you, or you could hire an accountant. If you employ staff, you’ll need a system that calculates salary, tax deductions and National Insurance contributions.

Step 12: Open a business bank account

If you’re a sole trader or in a partnership, you won’t need to have a bank account specifically for business. That said, you might find it helpful to keep your business and personal finances separate, particularly if you’re in a partnership. We can help you compare current accounts. But at the present time, we don’t offer comparison for business current accounts.

Limited companies will need to open a dedicated business bank account. Look out for account fees and what business support the provider offers.

There are lots of things to think about, so the right preparation and planning from the outset could really help to make your business a success.