How to start a business in 6 simple steps
Are you dreaming of starting your own business? Whether you have a brilliant product or service to share with the world or you’re just keen to break free from the 9-5, going it alone could be a great option - but it can be hard to know where to start.
At FreeAgent, we live and breathe small business, so we know a thing or two about successful startups. Our guide to starting a business has six steps. You can jump straight to a section or read on to take it all in:
- Develop an idea for your business
- Research demand for your business idea
- Create a business plan
- Explore funding options
- Register your business
- Deal with the essential admin
1. Develop an idea for your business
You might already know exactly what you want your business to do, but perhaps you simply have the drive to be your own boss without yet having a specific idea in mind.
If you already have an idea, that’s great - skip ahead to step 2. If you haven’t got an idea yet, don’t worry. As long as you’ve got the drive and determination to run your own business, you’re on the right path.
To think of ideas for a new business, consider the following:
- What are you good at and what do you like doing? Is there a hobby you can turn into a business? Maybe you’re really great at something that other people struggle to do.
- What is there a demand for? Can you spot a gap in the market or a golden opportunity? What’s missing from your local area or the sector you currently work in?
- How much can you afford to invest? Be realistic about how much money you can put in to get the business off the ground.
2. Research demand for your business idea
Having a great idea is the first step, but before you get too carried away, you’ll need to find out if everyone else agrees with you.
Successful businesses start with strong market research. That means knowing who you want to sell to and making sure there’s sufficient interest to make money.
Market research can seem daunting, but there’s plenty of useful information online. Typically, you’ll need to think about:
- how big your target market is
- how many people are likely to buy from you
- how much they’d be willing to pay
- who your competitors are
- the strengths, weaknesses, opportunities and threats for your business (known as SWOT analysis)
These insights will help you plan effectively for the future and write a strong business plan.
3. Create a business plan
Your business plan describes how you intend to run your business. It provides the opportunity for you to think through everything you need to do in order to be successful, whether you’re planning a simple one-person startup or a bigger enterprise.
A solid business plan is essential if you think you’ll need to find funding for the business (see next section).
When you start planning your business, think about the following questions:
- Who? What staff will you need to run your business? What management structure do you need? What skills do your staff need to have? How will you recruit, retain and train them? How much will staff cost?
- What? Are you selling products or services? Why will people want to buy them? What is your unique selling proposition? What will you be able to charge?
- Where? Where will you promote and sell your product or service? Will you promote your business online but sell from a physical shop? Will you do everything online? Will you need office space or a warehouse?
- How? What will your day-to-day operations look like? What are your processes for stimulating demand, processing orders and fulfilling them? Will you need third parties such as suppliers or distributors? How will you fund everything until you start turning a profit?
- When? Think about a realistic timeline to arrange everything you need to launch your business successfully. For example, finding premises, recruiting staff, manufacturing or sourcing products, building a website.
Want to know more? Read our guide on how to write a business plan.
4. Explore funding options
There are a number of ways to fund a new business, from traditional business loans and specialist government-backed Start Up Loans to angel investors and crowdfunding.
Your business plan should contain a realistic budget showing what it will cost to start your business. If your startup costs are minimal, you might be able to ‘bootstrap’ your business, which means funding it out of your own pocket.
If you need an injection of cash to help fund your startup, you’ll need a strong business plan to share with potential lenders or funders.
5. Register your business
You’ll need to decide on a legal structure for your business and register it with the relevant authorities. In the UK, most businesses are registered as one of the following:
This is the simplest business structure. You pay personal tax on your earnings through a Self Assessment tax return and need to register only with HMRC, not Companies House. But if things go wrong with the business, debtors can pursue you personally for anything you owe.
A partnership is when you run a business with another person. It’s like being a sole trader but you’re sharing the business with someone else. You will need to register with HMRC and complete a partnership tax return as well as a Self Assessment tax return.
Limited Liability Partnership (LLP)
‘Limited liability’ refers to the fact that this structure is a separate legal entity that protects the partners’ own assets if the business is sued. An LLP is treated the same as a partnership for tax purposes, plus it must register with Companies House and file accounts every year.
This is a more complicated structure but one that provides more protection if your business fails, as debtors can’t pursue you personally. You pay Corporation Tax on profits and personal tax on any money you take out of the business. You’ll need to register with HMRC and Companies House within three months of starting trading.
Other things you might need to register for include:
If your business turns over more than £85,000 per year, you need to register for VAT. You’ll have to add VAT to any sales you make and pass this on to HMRC, and you can reclaim some of the VAT that you pay as a business.
Many businesses - for example, those associated with food, children, animals, alcohol, gambling or live music - must be registered or licensed to trade. Often this is via your local authority or an independent national body. Check out the government’s guide to licences for more information.
6. Deal with the essential admin
As a small business owner, you’ll have to do a lot of admin yourself, until you can afford to hire an administrator. It will save a lot of stress at the end of the tax year if you make time to do this as you go along.
Some things to be aware of are:
Keeping tax records
You’ll need to keep records in order to pay the correct amount of tax, so make sure you record all your income and expenditure. An accountant or bookkeeper will be able to help you with this. You can also use software such as FreeAgent to manage your books and prepare for Self Assessment.
Keeping VAT records
If you’re registered for VAT, you’ll need to keep VAT records too, to work out how much you owe HMRC (or whether you’re eligible for a rebate). You have to submit VAT returns every three months. Again, FreeAgent can help with this - the software can create the return for you and file it with HMRC electronically.
To protect yourself, your employees, your customers and your staff, you should have adequate insurance. Types of business insurance include:
- Public liability insurance: to protect you from claims from the public
- Employer’s liability insurance: to protect you from claims from your staff
- Professional indemnity insurance: to protect yourself if you make a mistake
- Income protection insurance: to protect you if you can’t earn due to illness
You also need relevant insurance for any assets in your business:
- Building and contents insurance
- Stock insurance
- Vehicle insurance
- Home-based business insurance
Now you’re all set. If you follow these simple steps, you’ll soon be ready to get your startup off the ground.