The essential guide to starting a business

Develop your business strategy

Discover the importance of a business plan and how it helps your business

Develop your business plan

So you’re ready to take your business idea to the next level? That’s great! The first step is conducting market research to make sure your idea is valid and that there’s demand in the market.

Discover the importance of a business plan and how it helps your business

Define what your business does

An elevator pitch – a 30-60 second overview of your business – is a great tool to start with when developing your business strategy. It’s a short and snappy summary of your answer to this question: ‘What does your business do?’

It can be used for networking but can also help you clarify the purpose and mission of your business.

What is a business plan and how can it help you?

A business plan is a written document that describes your business goals and outlines a plan for how you’ll achieve them. It explains business objectives and strategies, and includes your sales, marketing and financial forecasts. A good business plan can help focus your mind and ideas, and it’s an opportunity to tie everything together in one place.

Your business plan should sum up:

  • The customer need you’re aiming to meet
  • How your business will meet that need and make a profit

A business plan should be a working document that develops alongside your business. Your business strategy should cover three important topics that we will go through in more depth in this guide:

Business plan template

If you don’t already have a business plan, download our free, easy to use template from the Start Up Loans website.

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Activity: Elevator Pitch

Create a 30-60 second elevator pitch. Sum up your business and what it does. Make sure to:

  • Include the problem, want or need your business solves
  • Explain exactly how your business solves this
  • Be interesting – this pitch can act as a pitch for sales further down the line.
Calculator, diary and pen

Market research: understanding customers

So, you have your business idea. Now it’s time to learn about the market and your potential customers – basically whether there are any out there and whether your business idea is viable.

Market research can also help you understand what your customers want and what they’re willing to pay to get their hands on your product or service.

Understand the market and your customers

Market research methods for your business:

Send out a survey

You can create and send out a survey to your contacts. You can even use free tools such as SurveyMonkey. Social media is a great way of increasing responses.

Promote your survey on social media. Did you know you can promote posts on social media channels relatively cheaply?

Attend networking events

Keep an eye on events (free and paid) within your area. Rub shoulders with relevant business owners and potential customers. Learn about what works for them and what doesn’t.

Most business owners are happy to talk about their business and support other entrepreneurs if they can. Don’t be afraid to ask questions!

Speak to family and friends

You need constructive criticism and feedback on what your business could do better.

Hold a focus group

Focus groups put your business, product or service in front of relevant customers to get their feedback.

Look for relevant groups or events in your area. Trying to launch a baby product? Contact mother and toddler groups and see if they’ll let you attend and showcase your business.

Who are your competitors?

Look at businesses that do something similar to what you want to do. Identify what they do well and what they do badly and think about what your business will do better.

Examine two groups of competitors:

  • Direct competitors: those business that do the exact same thing as you. Opening a coffee shop? You’re up against big names like Starbucks, as well as local coffee shops.
  • Indirect competitors: just because another business is different to yours doesn’t mean you can’t learn something from it.

What to consider when researching the competition

  • Price: does your competitor offer the same product or service at a lower price? If you’re more expensive, can you justify it?
  • Quality: is your competitor’s product or service high quality? Is that quality something you can match or improve on?
  • Location: competitors aren’t just local. With the internet, your competitors can come from all over the globe, so don’t limit your research to your region.

SWOT analysis for your business

SWOT analysis can help you identify the strengths and weaknesses of your business idea, as well as the external opportunities and threats that could impact it.

  • Strengths (S) and Weaknesses (W)

    Strengths and weaknesses relate to your business’ capabilities.

    Working example: your coffee shop’s strength is the quality of the coffee it sells. But a weakness is the high cost of production, which makes your coffee expensive for customers.

  • Opportunities (O) and Threats (T)

    Opportunities and threats relate to external factors that could impact your business.

    Working example: an opportunity might be a new bus station near your coffee shop and an increase in passers-by. A threat might be a rise in the cost of coffee beans.

Location doesn’t always rule them out as a competitor – particularly if you run an online business.

Activity: SWOT Analysis

Complete the SWOT analysis for your business:

  • What makes your business better than your competitors?
  • What strengths can you use to take advantage of external opportunities?
  • How can you reduce the number of weaknesses within your business?
Calculator, diary and pen

Your company structure

When you start your business you will need to decide what structure you will trade under.

Sole trader or limited company

There are two main options for your new business:

  • Register as a sole trader
  • Register as a limited company

Or register your business as a partnership

If there are two or more people forming a company, registering as a partnership is a simple way to share responsibility.

You can do this by registering as a limited company or by each ‘founder’ acting as a sole trader within the company.

Sole Trader

You operate the business as an individual and are responsible for the business

You do not need to register your business with Companies House

No distinction is made between business finances and your personal finances

You can employ staff

You must complete a Self-Assessment Tax return for every financial year with HMRC

You must pay income tax on the profits that your business makes

You must pay National Insurance

You are personally liable for losses that the business suffers

You do not need to file Annual Reports with Companies House

Limited Company

The business is a separate legal entity, of which you are a director

You must register your business with Companies House

Business finances are separate to your personal finances

You can employ staff. As a director, you are an employee of the company

You must complete a self-assessment tax return for every financial year with HMRC

You must pay corporation tax

The company must pay National Insurance and income tax

The business is liable for losses that it suffers

You must file annual reports with Companies House

Business taxes and charges

Choosing your business’ legal structure is a big deal because it will impact how much tax you pay, the paperwork you need to complete and liability.

It’s important that you take some time to research the options available to you before registering.

It’s worth noting that your business’ legal structure can change. So if you register as a sole trader but decide that a limited company structure is more suitable further down the line, you can change.

The taxes and charges your business will pay depend on the structure you choose.

Below, we’ve outlined common business taxes and the company structures that are eligible to pay them. Study this list and use it to help you decide which structure is best for your business and remember – you’ll need to include these taxes and charges in your cash flow forecast.

Common business taxes and charges to consider

Corporation tax

If you register your business as a limited company, you’ll have to pay corporation tax. Once you’ve registered with Companies House, you’ll need to register for Corporation Tax with HMRC

Pay as you earn (PAYE)

Employing staff? If so, PAYE is a system that allows you to take income tax and National Insurance contributions into account before you pay salaries. Employees are assigned a tax code which determines how much of their pay is deducted from their salary.

Capital gains tax

Your business profi ts are taxable. If you buy a table for £100 and sell it for £150, you will be taxed on the £50 profit you made from the sale, not the full £150 you received.

Business Rates

If you plan to run your business from non-domestic physical premises, like a shop or office, you will have to pay business rates to your local council. These will differ based on where your business is located, so make sure you check the rates before signing for premises.

Income tax

Everyone in paid employment in the UK should pay income tax if their income is above a certain amount. Income below the threshold laid out by HMRC is not taxed, however there are other tax rates which are determined by income. These are set by the UK government and can change.

View the latest UK income tax rates

National Insurance

There are different rates of National Insurance contributions if you are self-employed and they are determined by your profits.

View the latest UK National Insurance contribution rates

VAT taxable turnover

If the ‘VAT taxable turnover’ of your business exceeds a certain amount within a 12-month period, you will need to register for VAT. You do this through HMRC.

View the latest UK National Insurance contribution rates

Self assessment tax date

The tax year runs from 6th April until 5th April the following year.

If you’re self-employed and operating as a sole trader or a director of a limited company, you’ll have to complete a self-assessment tax return by a certain date. Put the date in your diary and remember to check deadlines for registering.

Companies House has an email reminder service you can use to ensure you do not miss a filing deadline.

Business insurance

When starting your business, it’s important that you understand the risks you’re likely to face.

Employers’ liability

This insurance can help protect you if an employee becomes sick or injured due to the work they do for your business. Even if you have only one employee, this insurance is a requirement by law.

Public liability

Protects you if a person is injured (or their property is lost or damaged) as a result of your business and they want to be compensated for that injury (or loss). If customers can hire your services, they may ask to see your public liability insurance policy.

Product liability

Protects you if someone is injured as a result of the product that the business makes.

Professional indemnity

If your business operates from non-domestic physical premises (an office for example), you’ll have to pay business rates to the local council. These differ depending on the location of your premises.

Commercial property

If your business operates from physical premises, this insurance protects you against the cost of repairing the property and replacing any lost or damaged stock, should an accident happen.

Key man

If you are self-employed, you have sole responsibility for your business. This is a form of life insurance that would aim to compensate the business from losses that would occur from the death or extended sickness of an important employee.

Abstract illustration to depict a mentor and mentoree

Calculating your business finance

Issues with your business’ cash flow can be terminal for start ups. That’s why it’s vital you know how much money you have coming in and out of your business and what you need to make for your business to turn a profit.

What is a sales forecast?

A sales forecast is an estimate of how many units of your product or service you will sell every day, week, or month. After working out all of the costs involved in producing and marketing your product or service, you should be aware of how much you need to sell to make a healthy profit.

Your routes to market

Consider the channels that you are selling through and how the sales will differ on each – are you online, in a store or a market place?

Product Variations

If you have more than one product, how will sales vary for each of these? Think about factors such as price, sales channel, availability and customer want or need.

Benchmarking

Benchmark against previous sales. Have you conducted test trading? Whether it’s a car boot sale, a market stall or a pop-up, it’s a great starting point to forecast future sales. It will also highlight any flaws in your business strategy that may need altering e.g. if your price is too high.

What is a cash flow forecast and how can it help you?

A cash flow forecast is vital in helping you manage your business and its costs. Using information available to you, it allows you to forecast how much money you have coming in and going out of your business at any given point.

Golden rules of cash flow forecasting:

  • Be realistic.
  • Remember the definitions of ‘income’ (money received from work and/or investments) and ‘cost’ (amount of money needed to produce your product/service).
  • Plan multiple scenarios, including for when things go wrong.
  • Factor in fixed costs (constant costs such as rent and salaries) and variable costs (costs dependent on how much you produce, such as materials).
  • Plan for seasonality and remember to factor in expected busy and quiet times of the year.

Financing your business idea

Cash coming in: revenue

By completing a cash flow forecast, you’ll have worked out the amount of money that you need to develop your business idea into a reality.

Be realistic

Your sales are unlikely to be the same every month and the business will have busy and quiet periods.

Regular payments

If your business has regular payments, whether they are monthly, quarterly or annually, be careful when selecting the month and the amount accordingly e.g. insurance payments can be paid monthly, quarterly or annually.

VAT

If you register for VAT (your turnover is more than a certain amount as outlined by HMRC) don’t forget to include your quarterly payments. Turnover is the amount of money that the business takes in a certain time, typically a financial year.

The net cash flow of your business

= total income + total expenditure

Personal survival budget template

What is a personal survival budget and how can it help you?

A personal survival budget is a list of your personal finances. It will show you the amount that you will need to take from the business to live on.

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Success Stories

Without the CBILS loan, we would have been gone. With it, we’ve survived, retained a successful business and protected jobs, and we live to competitively thrive again. Ryan Palmer and David Pickard Co-Founders, London Sock Company

Other free toolkits

We’ve created free toolkits, covering some of the most important topics for start ups like yours, including:

Social Toolkit

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PR Toolkit

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Marketing Toolkit

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SEO Toolkit

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