Starting a business from scratch
Starting your own business can often involve nerves, excitement, and a lot of administrative work to get through. This guide covers every first step, from choosing a name to paying tax and securing funding.
Starting a business from scratch can feel daunting, but you don't need to have every answer before you begin. A strong idea, a clear customer need and a practical plan can help you move from a plan in practice to your very first sale. Here, we take you through some important things to think about to get you started.
Key takeaways
Start with a clear problem or gap in the market so your business has a purpose
Test your idea before you spend heavily on stock, branding, premises or equipment
Create a simple plan for costs, pricing, marketing and sales so you know what lies ahead
How to start your business
There are six key steps to take before you can get your business off the ground.
1. Come up with an idea
The first step in starting a business is having a good business idea. Think about what you're passionate about and where you think there might be a gap in the market.
Your idea could be related to jobs you've had in the past or even your hobbies. Try to ensure that your product or service solves a problem, and validate your idea to gain confidence before moving forward
If you're considering an online business, check out our step-by-step guide on how to start an online business.
These unsecured and secured loans could help you grow your business, cover running costs or even fund a new company.
2. Road-test your plan
Speak to your friends and family to see what they think about your idea. Consider market research to get feedback from potential customers or buyers. Make sure you completely understand your target market and audience. Consider their disposable income and determine whether you can charge enough to cover your time and make a profit.
3. Check out the competition
Look online to see if anyone else has had the same or a similar idea to yours. Most businesses aren't wholly unique, but if similar products or services exist, you'll need something to make yours stand out from the crowd.
You might be able to achieve this with cheaper pricing, improvements in quality, better customer service or a new twist or innovation.
4. Work out how to market your business
Once you launch, you need a steady stream of customers or clients to make the company successful.
Think carefully about how you’ll attract new business. You could rely on word of mouth, social media, marketing or traditional advertising. All these approaches require resources though - whether in terms of time, money, or both.
5. Think about the future of the industry
Research market trends and think about the future of your industry. For example, is there a chance that AI will replace your skills, or are people turning away from your product because it's not environmentally friendly?
You need to ensure that your business idea is as future-proof as possible. Thinking about the future may reveal new opportunities or ways to make your business more attractive.
6. Create a business plan
Use all this research to create a proper business plan: a written document that describes your business and outlines its future. It should include important information such as how much turnover you expect to make in the short and medium term and your strategy for achieving this.
All business plans need to contain several key sections, including:
An executive summary - think of this as your elevator pitch
Company information - what's your business? How is it structured?
Owner information - information about you, your partners and anyone else that makes up the ownership of the business
Market research - who are your customers, what do they need and what does the wider market look like?
Marketing strategies - how will you promote your business and attract customers?
Competitor analysis - who else serves your market and how will your business stand out?
Product and service design - what will you sell, how will it work and why will customers value it?
Development plans - how do you plan to launch and grow the business over time?
Operations and logistics plans - how will the business run day to day - from suppliers and stock to delivery and customer service?
Financial information - including start up costs and pricing, to day-to-day operations
The Prince's Trust has a helpful template to get you started.
How to name your business
Now you have a plan, it's time to get creative.
You want to come up with an original business name that helps sell your goods and services. Check online to see what similar businesses have called themselves, and try to choose something that stands out.
Limited companies also have to register their business name, which provides some protection, but whatever type of business you set up, you should consider trademarking to protect your brand.
Trademarking will prevent other businesses from stealing your intellectual property, including slogans, brand names, logos, etc. To find out more, read our guide to trademarking.
Case study: Meet Tinique: the events expert who turned a ‘lightbulb moment’ into a successful business
How to register a business
Once you've decided which type of company to set up and you have a name, you'll need to register it.
The process differs depending on the type of company structure you choose. There are three main options:
Sole trader
Limited company
Limited liability partnership.
Read our Sole trader vs limited company guide to find out which is right for you and the first steps to take to get started.
How much does it cost to start a business?
The cost of setting up a business varies greatly depending on your industry, the type of business you want to start, and what you need to get started.
Many businesses require nothing more than a computer and a wi-fi connection, such as freelance writing, bookkeeping or being an e-book novelist.
Some jobs require some goods or materials to get started, such as wool for a knitting business or supplies for a cleaning business.
Some enterprises have much larger overheads, such as offices, factories or heavy equipment.
Many entrepreneurs either self-fund their new business or seek investment from friends and family. However, if additional start-up capital is required, numerous options are available. Most fall into three categories:
Loans that require repayment
Grants that do not
Funding from investors in exchange for equity
Read our in-depth guide to business funding options to learn more
Tax
Taxes and finances are a huge part of running your own business. Self-employed individuals must complete a personal tax return each year.
Depending on the nature of your company, how much it makes, and whether you have employees, you may also need to consider national insurance contributions, VAT registration, corporation tax, workplace pensions and more.
You should also keep comprehensive records, including all your sales and expenses receipts. Hiring an accountant will cost money, but they can help you navigate all your responsibilities and ensure that you comply with UK legislation.
HMRC are now rolling out Making Tax Digital (MTD), meaning if you earn over a certain amount in a given year you need to keep digital records that link up to HMRC through compatible software and report quarterly. Read more in our detailed guide to MTD here.
💡 Editor insight: 2 in 5 SMEs unprepared for Making Tax Digital as first filing deadline approaches
Banking
If you’re running a limited company or in a partnership, you'll need to set up a business bank account.
Sole traders don't need a business account, but it can be useful for keeping business finances separate from personal ones. You can also use a business bank to arrange finance, such as a business credit card or overdraft.
Insurance
Insurance is another critical area to consider. There are plenty of different types, and while they don’t tend to be compulsory, they’re usually well worth having. These include:
Employer’s liability insurance (a legal requirement if you have employees)
Critical illness cover
Equipment insurance
You could also consider hiring a financial adviser and planner who can help you navigate all the financial areas of your business and your personal life.
Find out more about the benefits of working with a financial advisor
Choose the best business bank account for your company with features including no set up fees.