Setting up your own business is a big deal, especially if this is your first time doing so. Becoming an entrepreneur is not without its risks, but if you approach it strategically and methodically it could be one of the most rewarding things you ever do.
This guide is designed to take you through the key stages of starting a business, from the initial research through to building up a strong base of loyal customers or clients. Through this guide, you’ll find answers to business questions like:
- How to start a business from scratch
- How to raise funds for a new business
- How to grow your new business
How to start a business from scratch
There are many ways to start a new business from scratch.
But the key to success is to have a plan. The plan outlined here will:
- Help you understand your market
- Set you up with everything you need to register a new business
- Improve your forecasting and projections with a business plan
Here are 9 steps entrepreneurs should follow when setting up a new business:
1. Carry out market research
Inspiration for a new business could come from anywhere. Often, entrepreneurs notice that a particular service doesn’t exist, or is executed poorly by existing companies. Doing research turns intuition into something actionable and economically viable.
Methods for market research include:
- Searching key terms on Google and other search engines - see who shows up and how they compare to your new business idea
- Mystery shopping - gather valuable insights into how your competitors sell their product/service
- Checking competitor reviews - this helps you understand what your potential customers like about your competitors and what they don’t
- Companies House review - check Companies House for other businesses in your niche and location
What you want to get out of your market research is an understanding of who you’d be competing against and how their offering compares to yours.
If the niche that you’re looking into is already crowded with successful companies, it may be worth reassessing your own offering. A new business can successfully compete against a lot of more established competitors, but it needs strong USPs (unique selling points) and high-quality services or products to help it stand out.
2. Choose a company name
Choosing a name for your new business is one of the most important decisions an entrepreneur can make. Your name will set people’s expectations of your brand and be closely associated with everything that you do.
Choosing a name can be a lot of fun - but it’s not without its challenges!
There are several factors to consider when choosing a name:
- How distinctive the name is - your company name shouldn’t be too similar to any already in existence, for legal and branding issues. When people think of your company name, they should only be thinking about your business.
- The meaning that’s associated with it - if you’re using a pre-existing word or phrase, make sure that its current meanings work with the image of your brand. A company name should not only relate to your services, but to the personality and ethos of the business.
- How easy it is to remember - if you want people to remember your business at all, they need to remember the name. A 10-word long phrase might perfectly capture the vision of your company, but no one’s going to remember it. Choose something that will stick in people’s minds.
- The availability of a good domain name - Every new business needs an excellent website to represent. An important component of an excellent website is a relevant, memorable domain name. If you can’t get a .com or .co.uk domain with your company name or your company name and main service, it might be worth looking for a different name. You can use GoDaddy to check domain availability.
Important note: don’t wait to get that website domain name. Once you’ve settled on your company name, buy the domain, even if you don’t plan on making the website quite yet.
For more pointers on choosing a company name, check out our post on naming mistakes to avoid.
3. Decide on your legal structure
There are multiple types of company in the UK, but most entrepreneurs will choose to set up as either a private limited company (ltd.) or a sole trader.
Setting up as a sole trader is simpler than starting a limited company, with fewer legal requirements. However, a private limited company is a distinct legal entity from its shareholders, so shareholders are not financially liable if it goes under. Many potential clients will also perceive a private limited company as more trustworthy and reliable than a sole trader.
The table below highlights some differences in a number of key areas:
| Sole Trader | Private Limited Company | |
|---|---|---|
| Legal Registration | Register for self-assessment | Register for self-assessment and register business with Companies House |
| Income | Keep all profits after tax | Company directors can withdraw money through dividends, a salary or a loan |
| Tax return | Single self-assessment form | Separate tax returns for director and company |
| Liability | The individual is legally tied to the success or failure of the company financially | Shareholders are only liable to the extent they invested in the company |
| Perception (generally speaking) | Small, single-person business; local in scope | Professional, trustworthy business; scope as big as you want to make it |
Most of this guide will assume that you are setting up a private limited company.
For a full list of UK company structures and a description of each, visit our blog on types of company in the UK.
4. Find a business address
Before you can register your new business with Companies House, you need an official business address.
Your registered address will be visible to the public, along with other key business details, and will be the destination for all official documentation that will be sent in the first few weeks of registration.
Potential customers will make judgments about your business based on the address. This might seem harsh, but it makes sense in a country where certain cities and regions are renowned for certain industries.
You can technically use your home address as your registered address, most entrepreneurs choose not to as they want to protect their privacy and avoid receiving business mail to their house. In order to protect your private address and make sure that potential clients get the right impression from the start, consider using a virtual office address instead.
5. Register your business
Every business in the UK needs to register with Companies House. You will need to register both your business and business name, in order to comply with legal regulations in this country.
To register your business with Companies House, you will need:
- A business name
- A business address
- A company structure - meaning at least one director and shareholder.
You will also need the following legal documentation to register your business:
- Memorandum of Association: this document outlines the relationship of the company to its shareholders. It is available to the public and also contains the names of the shareholders and the physical address of the business.
- Statement of Capital: this document gives an overview of a company’s share structure. It may change in the future, but in incorporating your company it should clearly show the initial division of shares.
- Articles of Association: this document lays out how the company will be run going forward. In order to register your company online, you need to use the government’s standard articles, though you can write your own and register by post if you prefer.
Online registration with Companies House costs just £12 and can be paid on a normal credit or debit card. Applications normally go through within 24 hours.
Registering by post can take up to 10 days, costing £40 (paid by cheque). You can be registered on the same day by paying £100 and getting your application (marked ‘same day service’) to Companies House by 3pm.
6. Register for corporation tax with HMRC
You should register your business with HMRC as soon as you can after incorporation to make corporation tax payment as easy as possible. The deadline for registration is three months after you start trading.
HMRC’s corporation tax registration process is easy and can be done online. If you already use HMRC’s online service for your personal tax affairs, registering your company is as simple as activating the corporation tax online service. You can do this as long as you have either your business’s Companies House registration number (CRN) or your business’s registered postcode.
If you don’t already use HMRC’s online service, you need to sign up for it before registering your business. If you follow the steps on the online portal and have the documents mentioned above to hand, the process will be smooth and intuitive.
7. Register for self-assessment with HMRC
HMRC requires anyone who is self-employed as a sole trader, the director of a limited company, or a partner in a limited partnership to register for self-assessment if they’re not registered already.
This registration is separate to the corporation tax registration, as it concerns your personal income, rather than your company’s accounts. It is necessary for anyone who’s self-employed, whether you’re a sole trader or the director of a limited company.
Self-assessment forms are used to calculate personal income tax each year. Limited company directors need to keep track of how much money they’ve taken from the company and the means by which it was withdrawn, as dividends and salaries are taxed differently.
Sole traders need to be careful to separate the income from their business from any other income they may have, so that it can be taxed appropriately.
Our articles on completing online tax returns and taking money out of a limited company will help you more with self-assessment as you go on.
8. Set up a business bank account
Before you start trading on a large scale, you need to set up a business bank account. The documents that banks need to set up a business account vary depending on the bank, but common information includes:
- Certificate of incorporation
- Registered business address
- Business tax ID number
- Details of turnover and investment (see the next section for more information on raising funds)
It is also recommended that sole traders set up a separate bank account, as it makes it easier to keep track of your accounts. Sole traders normally need to bring some kind of evidence of the business’s trading name and address.
Different banks have different business account offerings. Price plans vary, as do the extra perks on offer. If you’re a new entrepreneur, it could be a good idea to go with a bank that offers business advice or mentoring as part of the package. Ultimately, there is no ‘best’ account. You should evaluate competing offers and choose the one that works best for you and your business.
9. Make a business plan
Your business plan is essential for the future health of your business. Not only does it help you to clarify your thoughts on your strategy for success, but it will also help to convince future investors or business partners that your business is worthy of their backing.
A business plan should:
- Set out what a company is
- Lay out what your objectives are
- Show how you plan on achieving those objectives
- Make financial projections
- Provide an overview of marketing and sales strategies and more
A business plan is a comprehensive overview of how you’re going to run your business.
Making a great business plan deserves a guide in its own right, so for more information, take a look at the Small Business Association’s fantastic overview.
Raising funds to get off the ground
Although the goal of any business is to generate a profit, nearly any company needs an injection of cash to get it off the ground. Many companies often need more cash at later stages to allow them to roll out a new product or to do something that will promote further growth.
Whatever the source of the cash, the goal of the business should be to make more money than was put in, thus returning a profit to whoever provided the cash in the first place.
There are different ways to raise money for a business. Some business owners have enough money saved that they can get it off the ground themselves, without needing cash from anyone else. Other people will use loans from family and friends, making them shareholders in the business so that they can get their money back as the business becomes profitable.
Some businesses are also eligible for government grants. Grants don’t need to be paid back and, while it’s unlikely that they will cover all the costs of setting up a business, they may cover costs for a specific aspect of the business and will certainly make things easier.
If grants and personal funding are unavailable or aren’t enough to cover the costs of launching the business, you may want to consider alternative means of raising investment: angel investors or crowdfunding. To help you decide, we’ve laid out two different approaches in detail below.
How to raise funds with angel investors
Angel investors are individuals with cash that they can invest into your business in return for equity (shares). These individuals could be friends and family, or they could be wealthy individuals whom you have convinced to invest.
Because an angel investor could be anyone with money to invest, there are no hard and fast rules to securing investment. Assuming that you are looking for wealthy people, such as successful entrepreneurs, to invest in your business, there are some strategies that might work.
Local networking is a great way to meet successful businesspeople in your area. However, if you go down this route, try not to see the people you meet as cash sources. The best investor-entrepreneur relationships involve a healthy level of trust between the two parties; you need to trust each other as individuals and business partners.
In order to convince an angel investor to come on board, you need to show them that they will make a profit. A strong business plan will help with this, as will evidence of any business dealings so far. Ultimately, you need to satisfy an investor that your business will be profitable enough to give them a good return through whatever percentage of equity you give them.
How to crowdfund your business
An increasingly popular alternative to private investment is crowdfunding, specifically, equity-based crowdfunding.
As opposed to the more widely-known reward-based crowdfunding, where backers pledge a certain amount of money and receive a certain reward in return when the total is met, equity-based crowdfunding involves selling a percentage of your company to your backers. Several websites exist to allow you to do this already, and the idea is growing in popularity.
Crowdfunding vs private investors
Crowdfunding your business allows you to raise money even if you don’t personally know people willing and wealthy enough to back you. It is low-risk and potentially high-reward. However, it doesn’t come with the advantages of bringing an experienced businessperson on board as an investor. An angel investor is more personally invested in your business and may be a source of helpful advice further down the line.
Both crowdfunders and private investors need to be convinced that your business is worth backing. Both need to see evidence that the business is - or will be - profitable. With crowdfunding, you only get a single web page to convince people to back you (in most cases), whereas you can take the time to build up a relationship with an angel investor and convince them of your ability to run a business and your business’s viability over time.
In both cases, you are giving up some percentage of shares in return for investment. Depending on the amount of money you need, the amount of time you have to raise it and the input you want from your shareholders, either crowdfunding or private investment could be better for you.
How to grow your business straight away
If you’ve done something along the lines of what we’ve suggested in this guide, the chances are that you’ll be in a good position with your new business. Don’t rest on your laurels, though. There are a few more things you can do to start competing with existing businesses straight away. If you get into good habits early on, you’ll be in a much better position in the future.
1. Create an awesome website
An excellent website is a must for any new business. When it comes to building your website, you have a number of things to consider:
- What platform to use. If you’re outsourcing, the development agency may sort this for you. If you’re looking into it yourself, however, this guide is a good starting point.
- How the design communicates your brand. The colours, fonts and language that you use on your site should all tie together to give visitors the best impression of your brand.
- How to structure your category/service pages. Your category or service pages should show your visitors exactly what you sell. Set out your site in a logical way so that it’s easy for visitors to see what you do and how to buy or enquire.
If you have the money, outsourcing the development can land you with a top quality website from the get-go. Good developers will be able to make you the website you need and you won’t have to spend time working on it yourself. Government grants may be also available to help you pay for it.
A word of warning, however: don’t just go with the first developers you find. Take some time to look at their portfolios and go with the one that you like the look of. You should trust the developers’ judgment in what works and what doesn’t, but it’s important not to ignore your own instincts.
Once your website is live, an investment in techniques such as search engine optimisation (SEO) and paid advertising online (PPC) can help to attract traffic and new customers. The international SEO at experts Moz do a fantastic beginner’s guide to SEO, while Google’s Adwords training is a great way to get started with PPC.
2. Grow your customer-base
A brilliant website is one of the most important tools you have at your disposal to attract new clients or customers, whether it’s there to generate leads or ecommerce sales.
Face to face networking events will help you to become known among the businesses in your local area. It’s also a good idea to become listed in directories, both national and local, so that local people can find your business in a variety of places.
Marketing and sales are both huge topics, both of which have many websites dedicated to tips and tricks. If you want to improve your knowledge in these areas, content producers like Moz and Hubspot are great places to look.
3. Find a business mentor
A business mentor will be able to give you a valuable second opinion when it comes to important business decisions and will help you to grow personally as an entrepreneur. Your mentor should be someone that you admire and respect, someone who knows what you’re going through and who has insight to offer that they’ve gained from their own experience.
If you don’t already know anyone suitable, you can find a mentor in the same way as you would find an angel investor, only you’re not asking them to make such a big financial commitment. Use local networking events or Chambers of Commerce to find someone who you click with.
An angel investor or more experienced business partner is valuable to have alongside you, but there is still something to be said for finding a mentor outside the business who doesn’t have a financial interest in what you or the business does. No new business is a guaranteed success, but this is something that will give you a much better shot at making it.
published under Starting a Business
