Thinking of starting a small business in the UK? There’s lots to think about, so to help you on your journey, here’s an overview of the steps you need to take so you can start trading with confidence this year.
So, you’ve got a great idea for a business. But do others agree? Conducting research can give you an understanding of whether your small business idea is viable, and if people will be interested in what you’ve got to offer.
Market research is all about delving into your potential customers’ mindset. You want to really understand your target market – their demographics, buying patterns, behaviour and thinking – and from there can determine the viability of your business. You can do this by directly asking your potential audience and seeking their feedback, but can also keep an eye on competitors’ products and wider trends to understand your market position. You can use the results of your research to tailor your offering accordingly, making it as appealing as possible to your customer base.
There are several methods for conducting market research, with popular examples including surveys, interviews, observations and focus groups. This is known as primary information, where the data is gathered by you. You may also want to collate secondary information, such as data from reports, journals or newspapers, for an overview of the wider landscape.
Here’s a list of some common businesses to consider, any one of which could spark an idea and be perfect for your particular skillset:
It’s an important decision, but it doesn’t mean it’s an easy one. You’ll need to think about your business itself and the image you want to portray, making sure it’s recognisable and appropriate to your offering, while at the same time not limiting yourself if your business were to expand. Make sure to get feedback from other people, but ultimately, it’s got to be a name you’re happy with, so spend some time on it and get brainstorming!
It goes without saying that you want your business name to be unique, both to avoid confusion and potential lawsuits. This means you’ll probably have to get creative, or if you’re operating as a sole trader, your own name could potentially be your business name.
To check if your business name is already taken, you’ll need to do some research. You can use the Government’s trade mark checking service to find out if your proposed name is already taken. Scour the internet for anyone who may already be using the name in an unofficial capacity, and check Companies House records for limited companies with the name. If the name has already been trademarked or registered at Companies House , then it’s back to the drawing board. The exception to this is if you’re a sole trader and someone else has the same name; this shouldn’t be an issue, unless you’re local to each other, or there’s a risk of confusion between your customer bases.
A sole trader is someone who’s self-employed and runs their business as an individual. Essentially, they are the business – there’s no legal distinction between the two, with the sole trader being wholly responsible for every aspect of their business.
This has advantages in that they can keep all the business’ profits and don’t have to register with Companies House or present annual accounts (though they’ll need to file self-assessment tax returns), with a heightened level of control and simplicity. However, they’re also personally liable for any losses or debts the business incurs, with their personal assets being indistinguishable from the business – and as such, they’ll be at risk if anything went wrong.
As a sole trader, you don’t pay yourself a wage in the traditional sense, as all profits belong to you. You can therefore pay yourself whatever you want, with this being known as drawings. However, some sole traders like to keep a separate business account that they can “pay themselves” from to keep their business and personal finances separate, albeit not in a legal sense.
A sole trader is an individual in charge of the business, whereas in a partnership, two or more individuals comprise the business entity. This has the advantage of dividing responsibility, with the business benefiting from different viewpoints and areas of expertise, and everyone involved in the partnership is jointly responsible for the business’ assets and any losses incurred. Yet potential drawbacks could present themselves if disagreements arise – unlike in a sole trader arrangement, where the individual has complete freedom over the business, a partnership means that joint decisions need to be made.
A limited company is a business that’s been registered with Companies House, making it a separate legal entity in its own right.
A limited company needs to have at least one shareholder with at least one share; the business is then owned by said shareholder(s). An individual can still own a limited company, the advantage being that their personal and business assets are kept separate, while tax advantages become greater the more the business earns. However, potential drawbacks of setting up as a limited company could be the fees that are payable, together with the requirement to submit accounts each year. Withdrawing money from the business can be more difficult, too, and the ownership details of the company will be on public record.
You can find out more about setting up a business and the rules you need to follow for each company structure at gov.uk.
A business plan is a document that describes your business in detail. It outlines its objectives and the steps you’re going to take to achieve those goals, including sales strategies, marketing plans and financial forecasts, and will ultimately show how it’s going to make money. It’s essentially a roadmap for your business and is a core part of any startup, and should be regularly updated as your small business grows. It’s often used as a way to secure business finance, too, proving to banks and/or potential investors that you’ve got everything under control and can turn it into a profitable company.
It’s often helpful to use a business plan template, particularly if you’ve never started a small business before, as this will cover all the areas you need to think about and the questions you need to answer. Here’s an example from the Princes Trust.
A business plan should be as long as is necessary to cover the required information. It’s important to be concise, but it’s a detailed document that requires specific elements to be covered, so make sure to break it down into easily digestible sections that contain all the necessary information.
This depends on the type of small business you’re looking to start. If you’re a sole trader setting up a copywriting business then the initial costs will be minimal, whereas if you’re looking to manufacture and sell a particular product your startup costs could run into the tens of thousands of pounds. This is why you should write a business plan so you know exactly what your financial needs are going to be.
You may be able to finance your business idea from your own savings, or you might need additional investment from a bank, perhaps through asset finance, business loan or business credit card. Or, if you’re thinking big, you may want to seek input from external investors. It again comes down to your business and the level of finance you need.
Business loans can be from as little as £1,000 to as much as £50,000 or more, depending on where you look for one. Yet the amount you’re actually able to borrow comes down to your individual circumstances, including your credit score, as well as your business plan.
Read our guide to find out the different ways to finance your business.
Having bad credit doesn’t necessarily stop you from being able to finance your small business in the UK, but it does mean that your options are going to be more limited. Mainstream banks are unlikely to finance your plan, which means you’ll be better off approaching specialist lenders that will be able to offer bad credit business loans. A business loans broker can help you to find the right lender for your business. In addition, you could spend time improving your credit score to boost your chances of acceptance.
Read our guide to find out the different ways to finance your business.
Most business will benefit from having a business bank account. While it isn’t technically required for sole traders, it’s often recommended – if only to keep your business and personal finances separate – while limited companies will most definitely need a separate business bank account. Many business accounts come with additional functionality that won’t be offered with personal accounts, too, such as invoicing capability and integration with accounting software, so it’s worth seeing what’s on offer.
These days there are a lot of tools at your disposal to help support your small business, from accounting software and online payment services to marketing tools and banking apps that can integrate with your bookkeeping process. It’s important to make the most of anything that could make running your business a bit simpler, so spend the time doing your research to see what’s out there.
If you’re setting up as a sole trader, you simply need to inform HMRC of that fact by registering for self-assessment. It’s similar for partnerships, though one person will need to register as the “nominated partner” who will be responsible for sending the tax return. There are more hoops to jump through with limited companies; you’ll need to tell Companies House in the first instance, and will normally be able to notify HMRC at the same time. Find out more about forming a limited company.
Simple company formation for £12.99
An accountancy app can help you to keep track of your business finances, record invoices and receipts and prepare your tax returns.
For sole traders who are self-employed, it doesn’t cost anything to register as a business. The same applies to partnerships. The only caveat is if you use an accountant to take care of things, in which case you’ll be charged for using their service. Registering with Companies House, meanwhile, costs £12 to register online and £40 by post.
Sole traders need to register their business if they earn more than £1,000 from it in any tax year, while partnerships must register by 5 October in their business’ second tax year. Limited companies need to register for corporation tax within three months of trading. As you can see, there are a lot of steps to starting a small business! But, if you start making a plan now, that stellar business idea could become a reality in the year ahead.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.