There are plenty of risks involved in starting a business, but doing your research and following these steps will greatly boost your chances of success.
Research the market
You've got an idea for a new product or service, perhaps by identifying a gap in the market. But before you properly start work on your business, you must be prepared to do plenty of research.
Testing your idea with potential customers, by undertaking questionnaires, arranging interviews and trialling your product or service, allows you to understand:
- How much people would pay for your product or service
- What people think about your rivals
- What problems your product or service faces, and how it can be fine-tuned
- Who will buy your product or service.
Remember to take any well-founded negative responses very seriously before proceeding with your idea.
Create your brand
Business names usually fall into one of three categories:
- Abstract - Deliberately unusual names can set you apart from competitors as bold, modern and challenging.
- Place - This can connote local pride, quality and authenticity.
- Your name - This gives the impression of a small and personable business.
When deciding upon a name, ask yourself:
- Does it create a positive impression in people's minds?
- Does it produce any inappropriate search engine results?
- Has it already been registered at Companies House?
- Is an appropriate domain name available at 123 Reg, GoDaddy or 1&1?
- Is it easily read, spoken and understood?
- Is it offensive in any other languages?
Once you've chosen a name, you can begin to market your brand. Successful promotional methods include:
- Attending networking events
- Building a high-quality website
- Creating a strong social media presence
- Designing an appropriate logo and printing business cards
- Exhibiting at markets or craft fairs
- Submitting for entry in relevant business directories.
Protect your copyright
There are several forms of intellectual property (IP) that allow you to protect aspects of your product or service from being replicated. They include:
- Copyright - Original artistic works resulting from intellectual skill or effort is automatically protected upon production.
- Patents - These prevent others from making, using or selling something without your consent. Protection is on a country-by-country basis and can last for 20 years, but inventions are only patentable if new and unique. Patents are public, so you can check whether your idea already exists before developing your product.
- Trade marks - These protect logos, slogans, symbols and brand names. They're usually registered on a country-by-country basis, but a Europe-wide Community Trade Mark can be obtained. You're handed 25 years' protection and the right to sue upon any infringement.
The government's website allows you to register a trade mark.
Work out your profits
First and foremost, you must estimate how much money you're going to spend setting up your business. Aim to keep your initial outlay low, and take into account the cost of:
- Income tax and National Insurance
- Legal and financial advice
- Marketing materials
- Premises, licenses, insurance and business rates
- Stationary, stock and vehicles.
Next, you can devise your pricing strategy. There are several approaches, the most common being cost-plus pricing. This involves working out your cost figure - the average of your variable costs plus your fixed costs - and adding your desired profit.
While the price of your product or service shouldn't be much lower than any competitors, you can justify a slight mark-up on the basis of factors including brand strength, seasonal demand, a lack of competition, or your product's quality or convenience.
Finally, estimate your annual sales volumes over a three-year period. You can then deduct your outgoings to predict your initial profits.
Register as self-employed
Failure to register as a sole trader or partnership with Her Majesty's Revenue and Customs (HMRC) within three months of self-employment may result in a £100 penalty. To register, you simply need to provide your personal and business details.
If you own a private, limited company, you must instead register with Companies House.
For more information on the different kinds of organisation, see types of business
Apply for start-up funding
While obtaining start-up funding isn't easy, there are several options available providing you've written a successful business plan
- Bank or building society - These offer loans to the most promising start-ups.
- Big Issue Invest - This organisation offers loans of between £50,000 and £3million to social enterprises or charities.
- Crowdfunding - This involves asking a large number of people to contribute to your start-up by donating relatively small amounts of money.
- Investors - Business angels are wealthy individuals who finance start-up businesses, while private equity companies are larger investment organisations.
- New Enterprise Allowance - Over 18s claiming Income Support, Jobseeker's Allowance, or Employment and Support Allowance may qualify for more than £1,200 of funding.
- Shell LiveWIRE - This organisation grants £5,000 to one young entrepreneur every month.
- Start Up Loan - This government-backed scheme provides loans of up to £25,000 for 16-30-year-old entrepreneurs.
Discover more funding options at the government's business finance support finder
Sort out premises and insurance
Premises are the biggest expense that new businesses face, so it's worth working from home initially if possible. Alternatively, you could rent or purchase private business premises, or work within a shared business hub.
Your business rate bill is paid for the forthcoming year every February or March. If you use a small part of your home for your business and/or sell goods by post, you'll almost certainly only have to pay Council Tax.
However, business rates must also be paid if your home-based business sells goods or services to people who visit your property. You'll qualify for small business rate relief if your property has a rateable value of less than £12,000. For more information, see the government's guide to business rates.
You must also ensure that your working environment satisfies health and safety regulations, and that you're sufficiently insured. Types of insurance include:
- Commercial property insurance - Even if you work from home and there's already a home insurance policy in place, separate insurance is necessary for your business premises.
- Contents insurance - This covers the replacement of stock and materials, and is required even if you're working from home and already have a home contents insurance policy.
- Employers' liability insurance - Provides cover for claims made by those who become injured or ill due to employment.
- Health insurance - This will pay a regular income or lump sum if you're unable to work due to accident or sickness.
- Professional indemnity insurance - This helps to protect you from claims made by dissatisfied clients if your product or service has cost them money.
- Public liability insurance - This provides cover against claims by members of the public who've been injured or had property damaged due to carelessness by you or any of your employees.
- Vehicle insurance - For any transportation used for business purposes.
In addition, specific licences are required if you wish to undertake certain business activities - such as playing recorded music in public, serving food or organising a temporary event. To find out which licences your business requires, check out the government's licence finder.
Keep track of your finances
Tax and National Insurance (NI) are both collected as part of your self-assessment tax return , which is completed in April.
You'll pay Class 2 NI if your annual profits are £5,965 or more, and Class 4 NI if your annual profits are above £8,060. If you're an employer you must also pay Class 1 NI, which is collected through the Pay-as-you-Earn (PAYE) system. Limited companies must also pay corporation tax.
If you're still employed elsewhere on a part-time basis, you can find out how you'll be taxed by visiting Brighton Accountants
Given the complexity of the tax system, documenting any money that enters or leaves your business is extremely important. You should therefore keep an accurate record of any:
- Bank statements
- Electronic sales or till rolls
- Hire purchases
- Invoices and receipts
- Money taken out of the business for personal use
- P60s (if you're also employed)
- Payroll (if you have employees)
- Rent books
- Stock on hand.
In addition to the above, you must register for value-added tax (VAT) within 30 days of your business passing an annual turnover of £83,000. Once registered, you charge customers VAT and submit a quarterly VAT return to HMRC. Invoices are provided to any VAT-registered business customers, and must include:
- A clear description of what you're charging for
- A unique identification number
- The amounts being charged
- The company name and address of your customer
- The date of the invoice
- The date the goods or service were provided
- The total amount owed
- VAT amount, if applicable
- your company name, address and contact information.
All taxes and NI must be paid, even if you make a loss. However, tax relief is available by setting the loss against any one of:
- Other income from the same or previous year
- Profit in subsequent years
- Profit in the previous three years.
Opening a business bank account is advisable, as it allows you to separate your business and personal finances. Many banks offer two years' free banking, so shop around. More financially complex organisations should also consider hiring an accountant.
Get professional advice
You can find further guidance, and perhaps even secure a business mentor, at places such as: