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Starting a Business In The UK – A Simple Guide

Starting a business can be incredibly rewarding and is a dream come true for many budding entrepreneurs. That said, it can be far from straightforward – especially if you’re not fully prepared.

That’s why we put together this comprehensive guide to break down the key steps that you should take before, during and after you launch your new business.

1. Cultivating the Right Mindset for Success

The first step may seem frustrating when you’re keen to get started as it isn’t the thing that most people would think, such as creating a business plan, sourcing business funding or creating a name for your business, but it is arguably more important.

It’s important that you mentally prepare yourself for the road ahead – success is rarely a linear road and even the most successful business owners have suffered their fair share of setbacks.

Understanding that you’ll face many dead ends, failures and setbacks, and learning to turn those into a positive by learning from them and adapting is a key skill.

2. Refining Your Business Idea

If you’re considering opening a business, you may already have an idea of what you want to do. Whether you think you have your idea nailed or are still working on it, my advice would be to keep returning to the idea and trying to break it.

Rather than focussing on the positives, consider what could go wrong – but don’t panic when you find a threat. Instead, consider the threat that you’ve identified, look for a way to reduce that threat and how you could react.

This will ensure your idea is well thought out and will help you to build your resilience and practice overcoming hurdles when they arise after launch.

If you go through this process enough times, you’ll also reduce the number of times you face an unexpected hurdle, as you’ll be in the habit of thinking ahead and avoiding threats.

Understand your niche

Take the time to really understand your niche – not just the products offered, but also what drives the economic engine of the industry. How do businesses make money? Where do clients come from? What marketing channels are likely to be effective?

Consider all of these points before moving forward and make sure you truly understand exactly how the industry operates.

Identify your ideal customer profile (ICP)

Not only should you understand the industry, but also consider your ideal customer profile. The ideal customer profile is simply who your target customer is – and what the pain point is that you can potentially solve.

Only when you truly understand your niche and ICP can you really begin to plan for success.

3. Crafting a Bulletproof Business Plan

Taking time to produce a robust business plan is the next step and is the key to starting a successful business.

When writing your business plan, pull together the information that you have already gathered – ideal customer profile, where you can find them, how the industry operates, the turnover and profit levels that you can expect to achieve.

Plan ahead for ‘pinch points’

The progress of a business isn’t a linear journey, if you plan to grow your company over time, you will hit points where you need to hire but don’t yet have the turnover to fund it.

Plan ahead about how this will be dealt with. Initially, it is often advisable to run as lean as possible, reducing expenses where possible. This may allow you to build up your cash reserves to fund future growth.

Steps to take include minimising expenses on all equipment and services, such as your business energy tariff, business broadband and other services.

If this is unlikely to produce significant cash reserves, you may need to borrow money to improve your business cash flow.

Again, understanding the most suitable products in advance can help you to make better decisions later – for example understanding the difference between invoice finance, a business loan and a merchant cash advance.

Set realistic milestones

Understand where you want to get to and how you plan to get there, but don’t only focus on the end goal.

Set realistic milestones that you can hit regularly. This will give you the opportunity to regularly measure progress and ensure you’re on track.

4. Legal Foundations for Your Business

Choosing the right company structure can have significant legal and tax implications for UK businesses. The choice between sole trader, partnership, LLP or Limited Company is key.

Sole trader: Operating as a sole trader is the simplest way of running a business and is common amongst smaller businesses, especially those with no employees. As a sole trader, you are self-employed and own the business that you operate. Operating as a sole trader does have some drawbacks however, as you and the business are considered as the same legal entity. This means that you are personally responsible for any legal or financial problems that the business faces.
Partnership: A partnership is like a sole trader business that is operated by more than one business owner. The key difference is that partners share the responsibility and profits from the business. Again, like a sole trader, a partnership is the same legal entity as the owners and therefore, they remain personally liable for any issues that the business runs into.
Limited Liability Partnership (LLP): An LLP is very similar to a standard partnership, however, it is considered to be a separate legal entity to its owners. This means that the owners of the business are not personally responsible for issues faced by the business, such as legal or financial issues.
Limited Company: A limited company is a separate legal entity from its owners, meaning the owners of the business are not personally liable for business debts or legal problems. Limited company tax rules also operate slightly differently, which can be beneficial for some business owners depending on their circumstances.

Navigating Registrations & Licences

Once you’ve decided on the right structure for your new business, the next step is to ensure that you have the right registrations and licences. This will ensure that you’re following the right steps to be legal, compliant and protected against future issues.

Register with Companies House: When setting up your company as a Limited Company or LLP, you will need to register with Companies House. This is known as a company formation. In some cases, you may be able to get a free company formation through your business bank account provider. The registration process will formally allocate shareholdings, and document who the company directors and company secretary are and once complete, you will receive your Certificate of Incorporation.
HM Revenue & Customs (HMRC) Registration: Whichever company structure you choose, you need to register your business with HMRC. Sole traders and partnerships need to register for Self Assessment which is the method used to pay income tax on profits. Limited Companies and LLPs registration is required to enable the payment of Corporation Tax.
Specific Licenses and Permits: You may also need specific licenses or permits to legally trade. For example, FCA regulation for mortgage brokers, tattoo studios require specific licences as do private hire vehicle firms.
Local Authority Rules: Make sure that your premises have the right planning class for your chosen trade, check for health and safety requirements and any other local guidance.

5. Financial Management and Funding Strategies

The next key decision is how you choose to fund your business. Managing your finances is crucial as almost every business failure is down to one thing – running out of money, or at least failing to generate a sufficient amount of cash.

Now let’s take a look at the best business finance management approaches.

Bootstrapping

Bootstrapping sounds complex, but it simply means funding your business operations and growth from your existing business cash flow. Bootstrapping is a popular method of managing your business operations, for the following reasons

Full Control: Bootstrapping allows the business owner to maintain full control.
Reduced Pressure: It removes the pressure of dealing with investors, who often expect fast returns that may not be realistic.
Saved Time: Saves a lot of time in sourcing and pitching investors, which could be better used in building up the business.

That said, it does have a few drawbacks:

Slower Growth: Your growth may be slower, especially if you struggle to generate excess cash.
Increased Financial risk: All of the financial risk is yours (although you could always look to source an investor later if this becomes too much).

Seeking Investors

Investors can provide a cash injection to your business, which can be used to push you forward. That said, they will usually expect a sizeable percentage of equity in the business, which results in a loss of control. The big wins of working with investors are the following:

Increased Working Capital: Cash can be used to ramp up growth quickly.
Networking and Expertise: Good investors will also bring a contact book that could assist in growing the business.
Reduced Personal Financial Risk: You face a reduced financial risk personally.

There are some drawbacks to consider, they are:

Loss of Control: You’ll face a significant loss of control in the business, which can often result in disputes in the future. Even if you’re very aligned initially, you won’t always agree.
Complexity: Seeking investors, agreeing terms, finding a way of working together and managing the business is very time consuming and can make things far more complex.

Regardless of which method you choose, you should spend some extra time upfront to make sure you’re saving cost wherever possible. Review your key products to make sure you’re getting the best deal.

Business Bank Account

Finding the right business bank account can make trading much easier. For startup businesses, some providers offer excellent benefits to make choosing them worthwhile, including free company formations and other support.

Business Finance

If you’re looking for additional finance to start your business, make sure you understand the different business finance products before you proceed. The products available can vary depending on your chosen sector, for example, invoice factoring is a great option for recruitment and manufacturing businesses, but isn’t appropriate for retailers.

A business cash advance is more suitable for retailers, and should be considered alongside asset finance, a traditional unsecured business loan and a secured business loan.

Business Insurance

Business insurance is an area where you can make significant savings when setting up your new business. A good business insurance broker will be able to offer multiple products, and advise you on exactly what you do and don’t need.

Whether you’re looking for commercial property insurance, public liability insurance or professional indemnity insurance, you should always compare offers to make sure you get the best deal.

Business Energy

Business energy costs can vary greatly depending on the provider and tariff that you choose. Before setting up your business premises, undertake a business energy comparison to make sure you’re getting the best deal.

Business Broadband

As with other types of business utilities, there is a lot of money to be saved by choosing the right business broadband service. As with broadband deals for the home, there are lots of different options, which offer a balance between speed and price.

Payment Services

Choosing the right business payment services can mean lower fees, better service and faster onboarding. Don’t overlook the importance of comparing your options, whether it’s card payment providers, merchant services or even a payment gateway.

Business Phone Providers

Choosing between a landline, VoIP system or business mobile phones can result in big differences in price and service. Once you’re settled on which type of service you need, undertake a business phone line providers to make sure you get the best deal.

Other Financial Tools For Startups

By now, you’ll have a very strong basis for controlling the finances of your new business. There are still a few more considerations to make sure you’re managing your cash flow perfectly.

They are:

Accounting Software: Platforms like Xero, Quickbooks or Sage can make it easier to manage your cash flow. They offer support in bookkeeping tasks, producing and managing invoices and providing financial insights for the business.
Budgeting and Forecasting Tools: Consider using a tool like Float or Futrli to produce forecasts. This will ensure that you don’t run into unexpected cash flow problems in the future.
Payroll Management: Finding the right payroll management software may not be crucial on day 1, but it’s worth making an informed decision upfront to avoid the need to switch later.

6. Building a Strong Brand and Online Presence

Your brand allows you to get your business out there and attract customers. Start off small, ensure you have social media accounts and keep them up to date.

Encourage friends and family to like the pages and share content to help you get your name out there.

This is a great stage in building the business as ultimately, the wider public don’t know who you are and have no expectations. This gives you a chance to test out what works and build a few key parts of your marketing machine, including:

Brand Voice: Building out a brand voice upfront will give you a consistent marketing language and allow you to build your brand over time.
Identity: Your wider identity including logo, colours, and how you present the brand will be very important in the future, so work hard to get them right early.
Value Proposition: Always ask yourself why a customer would choose your business. From there, you’ll be able to work out what your offer should be and how to present it for maximum results.

7. Developing Your Product or Service

For a smaller startup business, you’re not going to have the funds needed for large focus groups and customer data to sift through. That isn’t a problem, but does mean that you have to look at other ways to test the market.

If your business has rivals, look into how they operate and aim to reverse engineer their business. Not with the intention of copying it, but to understand why they do what they do and how their turnover and costs work.

From there, you will can look further afield at similar, but not identical industries to see if they do the same, or operate differently.

This will give you an idea of how the current market works, as well as inspiration on how you can put a twist on it and improve.

Talk To The Market

Do you know your potential customers? If so, ask them what they think of your offering. Then take things to the next level, and ask them how they think things could improve.

You don’t need to have all of the answers, listening to customer feedback gives you ideas for free about how you can take your offering to the next level.

8. The Art of Marketing and Sales

By now, you have identified your target customer, given some thought to your brand identity and voice, and put some thought into your offer.

The next step is to analyse how competitors in your market (or similar ones) market to their clients. Now ask yourself, do I follow the herd or test a different approach? If other companies are making a strategy work, it’s best not to totally ignore it, even if you feel you have a better idea.

Instead, test your idea against the current approach to validate that it works better. Once you’re sure, at that point you can go ‘all in’.

Managing Your Prospects

Consider investing in a customer relationship management (CRM) tool to manage your clients. This will give you clarity over your prospects and make it easy to keep track of potential sales.

If the costs make this tricky initially, a well set up Excel spreadsheet can work well enough as a temporary measure.

9. Scaling Your Business

Over time, you may be ready to consider scaling your business. While this isn’t for everyone, no guide to starting a business would be complete without information about how to handle this important moment.

Before taking the step to scale your business, consider whether your offer is saleable and how this would impact your brand identity.

From there, understand how your financials change as you scale the business. As you scale, you will inevitably need to increase the number of staff you have, the size of your business operations and the costs of meeting payroll.

Systems Are Key

If you plan to scale up, robust systems will be required to manage the growth. Without them, you’ll struggle to manage things as you get further removed from the frontline.

Strong systems, targets and measures of success are the only viable way to manage things at a higher level.

10. Navigating Challenges and Setbacks

Above all, always stay alert to threats and plan for setbacks. Things never work out exactly as planned in life, and the same can be said in business.

If you’re diligently working through this article, and acting on the steps, the good news is that you’re displaying the skills and attitude needed to overcome these challenges. Key challenges to be aware of are:

Underestimating financial needs: Thoroughly plan your financial needs, plan your budgets and aim to stick to them. If that becomes impossible, break down why, try to adapt and create a new budget based on your increased knowledge.
Feast and famine: Business owners often start to neglect controls and marketing as soon as things start going well. This often causes things to stall and leaves you short of business in the future, starting from scratch.
Focussing too much on one area: If you get too focused on one area, you will fail. For example, focussing on marketing while ignoring customer feedback will alienate your potential client base.
Failing to adapt: Plan your work and work your plan – until new information comes to light. If new information suggests a tweak to the plan, you should definitely take that on board.
Not having a clear plan: While you may start out with a robust plan, it can quickly change. When it does, update the business plan and press ahead on your now corrected course.

Staying Agile: Adapting to Market Changes

Your great advantage over your more established rivals is the ability to change course quickly. Use that (and any advantage that you have) to full effect.

Leverage Data and Analytics: Use data to make informed decisions and anticipate market trends.
Build Strong Relationships: Maintain good relationships with suppliers, customers, and partners to navigate challenges together.
Experiment and Iterate: Test new ideas and be willing to pivot your strategy based on what works.
Resilience and Persistence: Cultivate resilience by learning from setbacks and persisting through challenges.