There’s plenty of reasons to start your own company, from flexible hours and the joys of being your own boss to knowing that all the income you earn comes directly to you rather than lining the pockets of your employer.
But running a small business is also hard work not to mention all the admin and paperwork involved.
Before you take the plunge, it’s really important to have a great idea and to make sure that it’s profitable. After all, you want to make sure you’ll get a decent income that’s worth all the effort you’ve put in.
Here's everything you need to know, including how to do your market research, why a business plan is critical and where you can go to get even more advice.
We’ve all had that moment where you’re struck by what seems like a brilliant business idea – that you think could make you millions.
But how can you find out if there’s a market for your goods or services?
First, write down your business idea in as much detail as you can. Think about what you’d need to get started, how you’d attract paying customers and what is unique about your offering.
Make sure everything is as clear as possible and think carefully about what problem your business is solving.
Next, start doing some market research. Start off small, by discussing the plan with your friends or family.
See whether it’s something they’d pay for and whether they’ve heard of another company that does it. Ask people to be as honest as possible, or they might tell you it’s a great idea just to be polite.
Remember, not all businesses are brand new ideas. Many people develop successful careers out of going freelance and transferring skills and knowledge from an employer to their own company.
That said, if your business is the same as everyone else’s you need to think about what makes you stand apart.
Research your competition to see what they’re offering, how much they charge and what customers have said.
Make sure the market isn’t over-saturated and consider what you can offer that your rivals cannot.
This could be a brand-new approach, or it could be offering the same thing but cheaper, quicker or to a better standard.
One of the biggest mistakes people make when starting a business is underestimating the costs involved.
You want to make sure that whatever you do will be profitable eventually, and you don’t want to get into debt following your dreams.
Not every business is successful overnight, so there may be a period of time where you only break even.
You might even find you make a loss in the early months. Think carefully about your personal finances and how much risk you can afford to take. Be realistic about what the business needs to bring in, to make the venture a viable success for you.
You need to consider:
Costs of supplies (for instance, cake ingredients if you’re running a bakery)
Accountancy, legal and insurance fees
How much tax you’ll pay
Salaries for any employees
These are your costs of running the business. Next you need to think about what you’ll charge for your goods or services and how much you can reasonably sell.
For instance, if the raw ingredients for a cake cost £15 and you don’t think people will pay more than £30, you’ll only make £15 per cake.
That needs to cover your operational costs (electricity bills, marketing, licenses, cleaning) and what’s left is your profit. Also think about how long each cake will take, if you can only make two a day, you’re unlikely to earn enough to live on.
Sanity check your numbers. Look at what competitors are charging and ask family and friends what they think a reasonable price is. If the average cakemaker charges £40 a cake, but you need to charge £50 to make a profit, you’re likely to be priced out the market.
You want to keep your fixed costs at a minimum, to maximise your profit.
In the early days, you might want to keep things as simple as possible, before splashing out on fancy equipment or advertising fees. You can always scale up later, when you know the business is working out.
Consider writing up a full business plan. The Prince’s Trust has free templates available to help you get started.
You’ll need one if you’re planning on getting a loan or grant, but even if you don’t need funding, it’s a great way to focus your mind and identify any potential pitfalls.
You might be able to access a start up loan through the government, worth between £500 and £25,000. This is an unsecured personal loan, which means you’ll be on the hook to repay it even if the business fails.
Start Up Loans are government-backed and charge a fixed interest rate of 6% per year. You can repay the loan over a period of up to 5 years. There’s no application or early repayment fees.
You will need to pass eligibility checks and submit a business plan, cash flow forecast and personal survival budget.
You’ll be assigned a dedicated business advisor and you need to complete the application within 90 days. If the application is successful, you’ll also get twelve months of free post-loan support. You can find out more on the start up loans website.
You could also consider applying for other loans and grants. The government has a useful list of resources on its website.
Make sure you check all the eligibility criteria carefully. If you get a grant, you won’t need to repay the cash, but if you secure a loan, you’ll need to make repayments.
Some banks offer small business loans too, so this might be another avenue worth exploring. Make sure that repayments and interest are factored into your business budget.
You’ll need to think about what business structure would work best for your new company. The three main options are:
Read our guide to find out more about registering a business and which approach is best for you.
You also need to consider insurance, licences, setting up a business bank account and potentially even PAYE. All of these will factor into your start up costs, so you need to explore all these areas thoroughly to make sure your business can work.
If your business makes less than £1,000 a year, you don’t need to register with HMRC. You might want to consider starting small alongside your normal employment, and seeing how your business does and whether there is appetite before taking on any of the admin of registering the company.
Generally, we tend to know what things are allowed or not in the UK, but when it comes to business there might be industry-specific rules and regulations to think about.
For instance, if you’re planning on working with food, you need a specific licence. Equally, if you’re planning to sell to consumers there are strict laws about returns and rights. If you plan on hiring staff, there are strict rules about health and safety, working conditions and pensions to consider.
If you’re not sure if your business idea is legal, do some careful research. Check the government laws associated with the area, and see whether there’s other businesses doing similar things. If you’re still not sure, consult a lawyer.
Be wary of people looking for business partners as this is a common scam. Typically, you’ll be offered a chance to earn extra income by setting up a business and / or working from home.
Action Fraud says that common schemes ask you to fill envelopes, assemble products, or sell goods and services online. Often, you’ll be charged an up front fee to register, buy customer leads or buy the products that need to be sold on.
If you’re asked to carry out tasks, the scammers may say your work is not up to scratch and refuse to pay you. If you’re selling products, you may find that they’re worthless or even non-existent. Sometimes you’ll only get paid if you introduce new people to the scheme.
If you think you’ve been scammed, report it to Action Fraud as soon as possible.