How to set up an online business

With minimal start up costs and potential to reach millions of customers, setting up an online business has never been more popular. Find out what it takes to build a successful online business.

The number of online businesses has skyrocketed in recent years. Easy to set up, online businesses can suit anyone looking to become their own boss. From simple eBay shops and information sites to a full-scale online dating agency, there’s an online business for everyone. Even many traditional businesses can now be set up and run online.

The great news is that online businesses are easily scalable – you can start small to test out a business idea, work on it part-time or as hobby before deciding to take the leap and commit yourself to a full-time role.

The bad news is that it can be hard work, and a lot of other people may have similar or identical ideas!

So if you’re ready to join the swelling ranks of the UK’s online business owners, here’s how to get started.

Different types of online businesses

There are lots of different ways to make money online, but the most popular business models used for successful online business are:

Online store – This is one of the most popular forms of online business. Instead of renting or buying a local store, you sell your products or services direct to customers via a website.

Physical goods can be delivered to customers or digital products, such as ebooks, downloaded directly from your site. An online store puts you in direct contact with potentially millions of customers and has fewer overheads compared to a traditional shop. You can take payments via credit cards, or use systems such as PayPal to handle transactions.

Advertising – As with traditional media such as newspapers and magazine, advertisers will pay to place their advertisements on your website. You’ll need to have lots of visitors to your site – known as web traffic – for this to be profitable. This model works best with websites that freely provide information, entertainment or opinions, such as online magazines, popular blogs or help and advice sites. The aim is to attract as many visitors as possible in order to make money from advertising.

Subscription – This business model is used by websites offering information, entertainment or a specific service. Users are charged a subscription fee – monthly or annual – to access all or part of the content or service. Examples of online subscription businesses include Netflix, eHarmony, Weight Watchers and The Times newspaper. Some of our loan recipients have become very successful with this model.

Brokerage – A broker website works as a virtual middleman or marketplace, and it earns revenue from bringing buyers and sellers together, typically with fees earned for each transaction it facilitates. Well-known online brokers include eBay, Amazon Marketplace and Gumtree, and new online businesses can use these brokerage platforms to more easily sell to customers. For example, a price comparison site might list a number of viable options for a given product such as insurance; the customer chooses an option and is then taken through to the insurer’s website.

Which business model or combination of models is right for your online start-up will depend on the nature of your business.

Come up with an idea, name and business plan

As with any business, the first step in starting an online company is to decide on a business idea and create a business plan. Having a target audience and clear objectives firmly in your sights will help get your online business up and running quickly.

Successful businesses start by identifying a customer need, rather than focusing on a product. Find the need and you know there’s a good chance people will want your goods or services. Do some research online to find out what people are searching for and how many other businesses already fulfil that need.

It is always worth conducting market research before you take the plunge. The level of detail will be somewhat dictated by your budget, but there are ways of achieving a good understanding of your market on a smaller budget:

  • Use social media to reach out to interested parties, or ask trusted followers for advice/feedback on the idea. Be aware that this isn’t the most robust research, but for simple questions it could be an eye-opener.
  • Attend relevant events to see what’s popular and trending in your industry, and perhaps speak to entrepreneurs/start-ups to seek advice.
  • Use SurveyMonkey or similar survey software, which can be used to target specific audience types. You can set the size and scope of questioning, but be careful not to ask ambiguous or misleading questions.
  • Check potential competitor websites and look at how they sell goods and services and what they charge. Offering unique products or services will help make your business stand out from all the rest online.
  • Carry out a SWOT analysis to identify your own strengths and weaknesses and see if they apply to your findings.

Choosing a name

You also need to choose a name for your business. You may want to do this in conjunction with registering a domain name for your website, as the best solution is for the two to match exactly. The right name needs to be short and easy for customers to remember, be available a domain address for your website and not be too similar to the name of another company.

If you’re starting an online business from scratch, spend some time brainstorming a list of potential names and then whittle this down to just three or four. One approach is to register a domain name – or web address – that contains the keywords that people will use to find a business such as yours. For more information on naming your business, see our guide to choosing a brand name.

Register your online business domain name

Check if any of your potential online business names are available as a domain name. The name of your online business should match your domain name as closely as possible otherwise customers will fail to find you when searching online.

You can search for and register your domain name at web hosting companies such as 123 Reg, Go Daddy, Names.co.uk and Nominet, which is the official registry for .uk domain names. Type in your proposed business name to see if it’s available. If the name is already taken, the domain register website will suggest variants. Offensive/sensitive names are not allowed, as are any names that suggest you have links to external companies or government bodies when this is not the case.

Be careful trying to come up with a solution at this point; it’s better to change your business name than try to fit it awkwardly into an available domain name. Focus on getting a website address ending in .com and .co.uk. However, you may want to register variants of an address if they are available.

Check if the name has been registered at Companies House – the site is easy to use by simply typing into the box at the top, and clicking the link below. If you believe you have a trademark you can search at the Intellectual Property Office website.

Hosting your online business on the web

A web-hosting company stores your business website on its computer servers and makes it available on the web for others to see it. Free services are available but if you’re serious about running an online business it’s best to pay for web hosting that offers all the features you need now and as your business grows.

Prices start low, with sites such as Go Daddy offering a basic small business package that includes a customisable website and web hosting from just £6.99 per month. Before you choose a web host consider what support they offer should you face problems with your website, what backup services they offer and their scalability so your business can grow.

For example, an account of 0.5gb and 512mb of RAM might be enough for simple websites, which could cost as little as £3-£5 a month. If you do wish to scale up, one request to the host and this can be done instantly to support higher traffic volumes or more intensive websites. Many hosts offer 24/7 support no matter where you are in the world; super fast speed, SSL certificates for added security, and assisted set-up.

Create a business website

You can create an attractive, functional website yourself, with no need to spend money on hosting, by buying an off-the-shelf solution from free platforms such as WordPress, Magento or Shopify. You could use a free theme, or pay for a premium theme that may offer more features. One advantage of these sites is that they often feature SEO add-ons, which will help people find your site. Another is that you do not need to have any knowledge of coding or design to create an attractive functional website in as little as an hour or two. Alternatively, hire a website designer to create one for you.

As a start-up, you shouldn’t be spending more than is necessary. Your website should look good and be easy to use and find information. It should not be overly expensive to create. In fact, as an SME it might be better to direct your funds elsewhere, especially if you have concerns about cash flow in the company. Save your money for marketing your business.

Tips for your first website

  • When planning your website, concentrate on what’s important. For online stores, for example, a streamlined buying process is vital, with up-to-date stock information and fast delivery of key importance to customers.
  • Use one or two fonts at the most, and if possible limit them to one colour. Visitors will put up with a monochrome site, as long as they can find what they need.
  • A simple menu containing your homepage, products, contact and history should be enough to get you started. If possible include a ‘contact us’ box so that visitors can make quick enquiries, and be signed up to a mailing list.
  • Online stores will need a shopping cart function, a secure payment facility and a way to collect payments. PayPal is popular but most shoppers will want to pay via credit card.
  • Alternatively, most small online businesses prefer to use a payment gateway provider to handle credit card transactions in exchange for a fee. There are lots of affordable e-commerce systems available that can be bought off the shelf so shop around for one that suits your needs.
  • Don’t overcomplicate things. Videos, interactive elements, slideshows and other impressive features can be added at a later date.
  • Endorse the principle of ‘finished, not perfect’ – get a website out there and tell people about it.
  • Update it as regularly as you need to; reviews and endorsements are a good first thing to add to the site.
  • Remember it is also important to try and optimise your website for search engines to allow customers to find you more easily. For a wide range of beginner and advanced tips and tricks on optimising your website, download our free SEO toolkit for start up businesses.

Should I use social media?

This will depend somewhat on the business model you employed (see above), but it’s one of the simplest ways of driving brand awareness and giving your company a voice. Entrepreneur magazine wrote that startups actually have a distinct advantage in the social media marketing realm, since users love what’s new – and startups are new by default.

Once the website is complete this should be one of your first jobs; setting up a relevant account showing your personality and products, on Facebook, Twitter, Instagram, Pinterest, and/or YouTube. You’ll be able to engage with customers and answer their questions; promote any new stock or offers; and deal with any complaints.

What online business regulations should I know?

As with any retailer you’re subject to certain laws and regulations when selling goods and services online. These include:

The Consumer Rights Act 2015: This became law on October 1 2015, replacing The Sale of Goods Act 1979 and The Supply of Goods and Services Act 1982.

Overall, the act lays down conditions that goods sold must meet; for example, they must be as described, of satisfactory quality, to an agreed price, and be fit for purpose. If the goods do not meet these conditions, the buyer should have the right to a refund. This applies to both online and offline purchases, ensuring that work must be carried out to a standard or price agreed beforehand and that the professional has a duty of care towards you and your property.

The Consumer Contracts Regulations: This refers to numerous legal responsibilities that a seller must provide about a business, such as:

  • Information about the seller (business address and contact details)
  • An accurate description of goods and services including description of your goods or services and prices including VAT
  • Payment details
  • Delivery costs and arrangements, and exchange details
  • Refund policy, privacy policy, and terms and conditions
  • Cancellation rights and relevant time limits
  • Costs of returning an item

The Data Protection Act 1998: An act designed to protect personal data stored on computers and laptops etc, into an organised system where it is safe.

The Electronic Commerce Regulations 2002: These establish legal rules that online retailers must comply with when dealing with consumers in the EU. Retailers must provide information when conducting business via electronic means, such as:

  • Technical steps of placing an order
  • Terms and conditions under which a contract is made
  • Prices must be clear and state if tax is included
  • The company’s registration number and location of registration
  • The name of the service provider, email address and geographic address

You can find more information on the gov.uk website about the types of regulations that affect online businesses operating in the UK.

For example, you’ll need an official company address that needs to be the same as your registration location, where notifications will be sent. Bear in mind that this will be publicly visible, so be wary of using a home address. Some people choose their accountant’s address, or sign up for a ‘virtual office’ that will deal with post for you and looks more professional. A third option is to use a mail forwarding company.

It’s also worth looking into insurance for your company and site, to protect you against cyber attacks, accidents (employers’ liability insurance), and any other eventualities that could occur.

Register your online business with HMRC

As with starting any business, it’s essential you register your new online business with HM Revenue & Customs to ensure you’re paying the correct amount of tax and National Insurance. You can choose to register as a sole trader or as a business partnership if working with someone else. Alternatively, you can set up a limited company. Each has different legal and tax responsibilities, so research carefully which is best for your situation.

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