If you’re thinking of setting up a small business, it’s essential that you know exactly what’s involved.
Our seven step guide covers some key factors to consider when launching a start-up and running your own business.
Launching a new business can be daunting, but over 360,000 new businesses (PDF, 402KB) start up in the UK each year, with many operating successfully and profitably.
Setting up your new business involves lots of tasks, so it helps to have a working plan of everything you need to do before you start.
Starting a business doesn’t come with a set of instructions.
We know that understanding the many different types of financial product in the marketplace can be difficult.
Our Making business finance work for you guide is designed to help you make an informed choice about accessing the right type of finance for you and your business.
The seven factors of creating a business
- Business idea – Spend time carefully thinking through your business idea to ensure it’s feasible
- Assess your situation – Understand what commitments running your business will involve
- Business plan – Create a detailed plan for your business, including how it will generate money
- Research your business – Research potential customers and competitors
- Register your business – Choose the right business structure
- Sort business finances – Decide if you need external investment or a small business loan
- Get business advice – Learn where to find business advice and mentoring
Whatever the reason for setting up a business – from being your own boss opens in new window to turning a hobby into a business opens in new window – here are some steps to follow to give your new business the best chance for success.
Step 1. Get your business idea right
Business ideas opens in new window can be based around brand new products and services, or providing a service or product that’s cheaper or better than competitors opens in new window.
Not every business idea just strikes you out of the blue, so if you’re struggling for a good concept to build your new business around, start by brainstorming lots of ideas opens in new window.
Concentrate on identifying what people want opens in new window and the issues that they face, then think about ways of solving their problems or satisfying their needs.
Virtually all businesses have some form of online presence opens in new window, so when you think about how to start up your own firm this should be at the forefront of your mind.
Online businesses are easily scalable and can be tested before fully committing yourself.
Step 2. Assess your situation
Consider carefully whether you’ve the time and flexibility to start a business.
Will starting a business fit in with family and other commitments?
Will you run it full time, or part time alongside another job?
Answering these questions will help you choose the right type of business for you.
Launching and growing a start up takes time, hard work and resilience opens in new window, so it’s important to be realistic about your situation.
If you are running a business part time opens in new window, for example, you may need to consider employing staff opens in new window to help you when you’re busy or to take on the less demanding jobs.
Perhaps circumstances will mean that you want, or need, to work from home opens in new window.
Step 3. Plan your business
Create a detailed plan of the first five years of your business, including your strategy and marketing plan.
Planning your business opens in new window lets you understand business assumptions – how many customers you’ll need opens in new window, how much you need to charge, and how much the business will grow opens in new window.
Those assumptions can be tested when researching the market opens in new window to check they hold water.
Learn more about market research for small businesses.
Don’t think of a business plan as a rigid document – markets can change and you’ll need to be flexible – but it’s a good way to keep your business organised and on track.
You can predict where you want your business to go and when, or indeed if, you’ll need to expand operations. For example, you may need to hire staff opens in new window in the future or rent office space opens in new window.
Planning your business is a great way to foresee potential pitfalls.
Many start up businesses don’t succeed in the long term opens in new window, but by creating a detailed plan you will help to ensure the validity of your business and increase your chance of success.
You’ll also need a comprehensive business plan if looking for a business loan to finance your start up.
Steps to creating an online company
Come up with a business idea, name and plan: this will involve extensive research opens in new window to find out what people are searching for, and therefore the likely popularity of your idea. Is it something people are looking for? Is it unique? What are competitors doing?
The name should be easy to recall. One way of narrowing down the options is to brainstorm a few ideas, and then see if you can register the domain name at the same time. Try to find something that contains your business name and check that it is available. Aim for .co.uk or.com if possible.
Host your business online: It’s a good idea to find a reputable web hosting company. You can do this for free, but it could benefit you to use a company such as GoDaddy and pay a small amount per month to help you in the early days. The reason for this is that the host can help you grow and scale upwards if and when you wish to progress to the next level.
Create a business website: The key for an SME is not to spend more than necessary opens in new window. You’ll probably want a website with all the bells and whistles, but that can come later. As long as it looks good and performs basic functions opens in new window well (i.e. you can take orders), that will suffice for the start. Save your money for marketing and running a good company.
Know the regulations: These include The Sale of Goods Act 1979, the Supply of Goods and Services Act 1982 and the Consumer Contracts Regulations. You can find more detailed information about online selling regulations opens in new window at Gov.uk.
Find out more about setting up an online business opens in new window.
Step 4. Research the market
Research opens in new window is vital when it comes to understanding your target market, your competitors and your industry.
The results of your research will shape your business structure, resources, customer demographics and pricing.
Interview your target audience to test if your product or business idea creates interest.
It’s best to ask people you don’t know, as a personal connection may prejudice the answers.
Focus groups are a good way to get feedback on your product and service: select a small group of people based on certain attributes – for example age, career, gender – that you think matches your target audience.
Alternatively, ask potential customers to fill in a survey online or visit potential customers to discover what they would like to see from your product or service.
Be sure to research your competitors too; you’re looking for a gap in the market that your business can fill.
Go through their ordering service – how did they deal with you, how much did they charge, and how would you improve on their service opens in new window?
Consider how your business can stand out from competitors opens in new window.
For example, if your competitors are well known chains, you may need to offer something different to make your business more appealing.
Step 5. Choose a business structure
There are different business structures you can use – from setting up as a sole trader opens in new window to registering as a limited company opens in new window and we’ve provided a brief overview of each below.
All have their pros and cons, so it’s worth ensuring that you choose the best structure for your business and take specialist independent advice to establish which structure is the most suitable for your start-up.
- Setting up as a sole trader – Most start-ups are registered as sole traders as it’s the easiest and cheapest way to start a new business. You must register with HM Revenue and Customs as soon as possible after starting your business. Find out how to set up and register as a sole trader opens in new window.
- Setting up as a partnership – If you plan to work alongside people you know well, for example with your spouse or a relative, you may want to set up as a formal partnership opens in new window. With this business structure, you share responsibility for your business with your partners and must agree how liability and profits will be shared. A business partnership is unlimited and so is different from a limited liability partnership.
- Setting up a limited liability partnership – This is essentially a business partnership combined with a limited liability company. This means, like a limited liability company, you’re responsible for business debts but unlike a partnership, this liability is limited to the amount you invested in the partnership.
- Setting up as a limited company – A limited company opens in new window is a private company owned by its shareholders, where you as the owner are responsible for business debts up to the value of your shares. The limited company’s finances are separate from your own, and tax is more efficient for a limited company than for a sole trader. You’ll have to submit full accounts and pay Corporation Tax opens in new window every year. Profits from a limited company can be drawn as a salary or as dividends and you’ll have to pay income tax on this too.
The advantages of forming a limited company include the fact that liabilities such as debts or legal action are limited to the company, meaning that you are protected from going personally bankrupt in the event the business fails.
Limited companies can appear more professional, and they’re also easier to sell on should you wish to change direction in life later.
Setting up a limited company – the steps
Choose a name: There are certain restrictions on what you can choose as your name. For example, it cannot be too similar to other company names. Search the Companies House Register opens in new windowto find out more.
Choose company officers: All limited companies must have at least one company officer who is responsible for the business at all times. They manage the company in accordance with its articles of association and the law, and ensure annual accounts and annual returns are completed opens in new window. Larger businesses might also require a company secretary.
Register the limited company: You can either do this yourself at Companies House (which takes 24 hours) or use a company formation agent. You’ll need a registered office address opens in new window and several other registration documents opens in new window including a memorandum of association which details directors and shareholders’ details. After you’ve registered the company, you’ll be sent a certificate of corporation confirming the company’s existence and you’ll be expected to meet certain requirements such as submitting your company’s annual accounts.
Step 6. Assess your finances
Starting a business can be costly so it’s important not to overspend opens in new window.
Aim to keep costs to a minimum and spend only on important things that are likely to result in more sales opens in new window.
Many new businesses require finance opens in new window when first starting and there are many ways a business can obtain financing, such as borrowing from friends and family, bank loans, or personal loans from the government-funded Start Up Loans Company.
Before accessing any financing, you should take independent specialist advice to fully assess the pros and cons and to determine which options are suitable for your business.
.In most cases, to apply for a business loan opens in new window through a bank, you must be a UK resident, plan to start a business and not be bankrupt or in debt.
Angel investors are another way to raise finance, and have helped companies including Google and Yahoo.
However, they typically require around 25% return on their investment.
Alternatively, you could source from the Start Up Loans Company.
You could borrow up to £25,000 as an unsecured loan opens in new window.
As with any financial decision, its a good idea to first seek independent specialist advice to find out what financial product is right for your business and its circumstances.
Step 7. Get help starting a business
Finally, before you take the plunge, seek advice and guidance in starting and running a small business.
Business mentors opens in new window can offer tailored advice suited to the type of business you’re running.
There’s plenty of help available, from mentoring networks opens in new window to government schemes.
Schemes such as those from Start Up Loans include free mentoring support, offering a range of advice to successful loan applicants.
Thinking of starting a business? Check out our free online courses in partnership with the Open University on being an entrepreneur.
Our free Learn with Start Up Loans courses opens in new window include:
- Entrepreneurship – from ideas to reality
- First steps in innovation and entrepreneurship opens in new window
- Entrepreneurial behaviour opens in new window
Plus free courses on finance and accounting, project management, and leadership.
Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.