How to start a business

If you are thinking about starting a business, then you’ve come to the right place. The hardest part of the journey you are about to embark on is always the beginning. This is because it can feel overwhelming to leap into the unknown. 

However, the good news is that we have all the resources you need to get started. 

So, if you aren’t sure how to create a business plan or don’t know what funding options are available for your business idea, stick with us and we’ll guide you through the process.

You can also take advantage of various business online tools, like this cash flow template, business plan template and invoicing template.

Market analysis is important when setting up your business as it helps to understand your target market so you can differentiate your business from competitors. It can also allow you to highlight trends and opportunities in your market. 

Research is the key to market analysis and try not to rush this process, as it will play an important role in your business plan and ultimately in your business’ success. Use this analysis to also identify any gaps in your industry and look at whether there are any barriers which could cause problems in the early days of your business. 

There are two main types of business structures; limited company or sole trader. If you are thinking about starting a small business then you’ll need to decide what it will look like. 

Each business has different ways of dealing with tax and National Insurance, so have a chat with your accountant if you need further information. 

Sole trader 

A sole trader means that you run the company by yourself, and the tax thresholds work in a similar way to when you’ve been employed. You’ll also need to register as self-employed with HMRC, but won’t need to register with Companies House. 

A sole trader is best if you don’t plan to hire anyone else, so works well for freelancers. However, bear in mind this means you are personally responsible for any debts from the business. 

Limited company 

If you have bigger plans for your business and hope to hire employees, then consider a limited company structure. This is when you create a legal entity for your business, which is separate from the people who own, run and work for it.

It will need to be registered with Companies House and the company will have one or more directors, who are legally responsible for running it. Company tax accounts will need to be completed each year and submitted to HMRC.

You can find out more about sole traders and limited companies by reading our in-depth guide.

If you are starting a business, it’s important to understand if there are any legal requirements. For example, some businesses may need a special licence to operate. 

Do your research and utilise the government website for information to make sure you are compliant. An accountant can also help you with setting up your business and offer information on tax and business expenses. 

You might also need business insurance to protect you if something goes wrong and it’s a legal requirement to have a company person if you are employing staff. 

The one thing every single business needs to work is income. But how you get the money rolling in changes depending on whether you're selling your goods and services to the public or another business.

Taking payments from the public

If you’re taking money directly from the public, especially in a retail setting, that means you’ll need a way for them to pay you - especially given a lot of people no longer carry cash on them.

The good news is that it’s no longer difficult to pick up a card payment terminal with a pretty small up-front cost.

Think of payment terminals as a bit like mobile phones. You can either have a pay-as-you-go model - where you pay up front for the handset and then have a small amount of each transaction deducted - or sign up to a monthly contract where you pay each month, get the handset included, and save money on transaction fees.

If you’re feeling fancy you can get your whole payment system in one go - offering a till, receipt printing and more - although this will cost more.

Which sort of terminal is right for you depends on the sort of business you’re running and how much you’re likely to sell in a year.

If you’re online, you need a payment gateway - something that lets your website accept credit and debit cards and then directs that cash to your bank account.

The good news is that if you’re selling online and in person, many card machine providers also have an online element - meaning one company can do both.

If you’re online-only, you can sign up to one of a number of providers. Some of the top payment gateways in the UK are PayPal, Worldpay, Shopify, Stripe and Amazon Pay. 

Taking payments from other companies

If you’re a small business, getting paid by another company or client by card (or in cash) can be a problem. That’s where invoicing comes in.

An invoice is, in effect, you sending a bill to someone for work you’ve done. But they serve several other useful purposes too.

Firstly, invoices help you to keep track of your payments and the amount owed, which then helps you when you come to file your tax return.There’s a legal benefit too – if a company or client doesn’t pay you, your initial invoice can act as legal proof an agreed service was carried out, which you may need if you take further action. 

There’s also help available in making them - if your business regularly sends large numbers of invoices, consider using invoicing software such as that from QuickBooks and Zoho to save time and create batch invoices.

We’ve got a full guide to writing, and chasing, invoices here.

Business insurance steps in to protect you from financial loss if something goes wrong at your company.

This could be anything from stock being stolen to a customer taking legal action against you because a sign fell on them.

It’s generally only a legal requirement if you’re employing staff - but while you won’t be breaking the law if you don't take any out, you could be missing out on a lot of opportunities as well as putting yourself at risk by not having any.

That’s because it’s rather common for companies to require you to have insurance in place before they let you work with them.

It’s also a requirement to have insurance to join certain trade associations, meaning you could also lose out on work by being excluded from them too.

There are two main ways to buy insurance for your business. You can either buy a package designed to cover what you do - for example builder’s insurance or dog walking insurance - or you pick specific policies yourself to cover what you think you’ll need.

One of the best ways to avoid mistakes when you're starting out is to speak to people who've been there and done it already.

More than that, building a network or finding a mentor can also help when finding clients or customers, getting deals with suppliers and much more.

Two places to start looking for like minded business owners are your local Chamber of Commerce and the Federation of Small Businesses, which hosts regular virtual networking events.

It's also worth taking to social media - and looking for relevant groups to join on Facebook or people in similar businesses you could message on LinkedIn.

If you're looking for clients or partners from other businesses, Business Networking International has plenty of UK groups. Only one person from each trade is allowed in each group, so there's a great opportunity to learn about other firms you might want to do business with.

And - finally - remember to ask friends and family. Even if they can't help directly, there is a strong chance they might no someone who can.