Starting a business can be risky, but doing your research greatly boosts your chances of success
Research the market
Testing your product with potential customers doesn't just allow you to fine-tune your idea and fix any problems - it ensures that interest in your offering actually exists. Identify competitors through researching the internet, local newspapers and business directories, discovering what they provide before approaching the public with a questionnaire. Ask them what they think of your rivals, and find out what they'd pay for your product or service. Take any well-founded negative responses very seriously.
Choose a business name
Your name must be unique, create a positive impression in customers' minds, and easily read, spoken and understood. There are several common naming strategies:
- Abstract - Deliberately unusual names can set you apart from competitors as bold, modern and challenging.
- Your name - This gives the impression of a small, personable business.
- Place - This can connote local pride, quality, tradition and authenticity.
You must also ensure that the name's available as a domain, includes keywords, doesn't produce inappropriate search engine results, and isn’t offensive in other languages.
Register as self-employed
Failure to register as a sole trader or freelancer with Her Majesty's Revenue and Customs (HMRC) within three months of self-employment may result in a £100 penalty. Registration involves providing your personal and business details. You must register with Companies House if you own a limited company.
Keeping initial costs minimised boosts your chances of success. Plan costs for:
- accountancy and tax;
- equipment and installation;
- legal advice;
- licences and insurance;
- premises and business rates;
- stock and materials;
Before purchasing anything, check your costs are lower than your sales forecasts. Premises are the biggest expense, so consider working from home. Try trading goods and services with other businesses instead of buying.
Securing funding isn't easy, but there are several options providing you have a strong business plan.
- Banks and building societies - These offer loans to the most promising start-ups.
- Big Issue Invest - This offers loans of £50,000 to £1.5million for social enterprises or charities.
- 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 Jobseeker's Allowance or Employment and Support Allowance may qualify for over £1,200 of funding.
- Prince's Trust - The Enterprise Fellowship provides loans for 18-30-year-old entrepreneurs.
- Shell LiveWIRE - This organisation grants £10,000 to one young entrepreneur every year.
- Start Up Loans - This government-backed scheme offers loans of up to £25,000 for 16-30-year-old entrepreneurs.
Pricing a product or service
Cost-plus pricing is the most common strategy. This involves working out your cost figure - the average of your variable costs plus your fixed costs - and adding your desired profit. Ensure that the price isn't much lower or higher than the competition.
You can justify a higher mark-up on the basis of: brand strength; lack of competition; seasonal demand; or product quality or convenience.
Business bank account
Keeping your business and personal finances separate improves your company's professionalism. Shop around - you can usually find deals offering two years' free business banking.
You should also open a business deposit account if you're likely to hold cash for some time, as you accrue some interest.
Tax and National Insurance
These are collected as part of your self-assessment tax return, which is completed in April. You'll immediately pay Class 2 National Insurance (NI), but you must pay Class 4 NI if your annual profits are above £7,956. Employers must pay Class 1 NI, collected through the Pay-as-you-Earn (PAYE) system. All taxes and NI must be paid, even if you make a loss. However, tax relief is available by setting the loss against: other income from the same or previous year; profit in subsequent years; or profit in the previous three years.
You must register for value-added tax (VAT) within 30 days of your business passing an annual turnover of £81,000. Once registered, you charge customers VAT and submit a quarterly VAT return to HMRC. Limited companies must also pay corporation tax.
Premises and business rates
You must ensure that your working environment meets health and safety legislation, regardless of whether you trade from home, business premises, a craft fair or a market stall.
Almost all premises are charged business rates, with agricultural land being one notable exception. You pay your bill for the forthcoming year every February or March. In some cases, such as in a property that contains a shop and a flat, you must pay council tax too. However, you'll qualify for small business rate relief if your property has a rateable value of £12,000 or less.
Licences and insurance
You require specific licences to undertake certain business activities. For example, you'll need a PPL licence to legally play recorded music in public. To find out which licences your business requires, check out the GOV.UK - Licence Finder.
You must also have certain types of insurance. Employer's liability insurance provides cover for claims made by those who become injured or ill due to employment, while vehicle insurance is required for business transportation. Other types of insurance include:
- Public liability - This provides cover against claims by members of the public who've been injured or had property damaged due to carelessness by you or your employees.
- Premises - Even if you work from home and there's already a policy in place, separate insurance is necessary for your business premises.
- Contents, stock and materials - This covers the replacement of stock and materials, even if you're working from home and already have a home contents insurance policy.
- Health and accident - This will pay a regular income or lump sum if you're unable to work due to accident or sickness.
Accounting and invoices
For tax purposes, you must document any money entering or leaving your business; it's therefore advisable to get an accountant if your venture becomes financially complex. Keeping records of the following will help you to complete your tax return:
- bank statements;
- electronic sales or till rolls;
- hire purchases;
- invoices and receipts;
- money taken out of the business for personal use;
- P60s (if you are also employed);
- payroll (if you have employees);
- rent books;
- stock on hand.
Invoices are provided to VAT-registered business customers who you've sold your product or service to. According to GOV.UK, invoices must include:
- a unique identification number;
- your company name, address and contact information;
- the company name and address of your customer;
- a clear description of what you're charging for;
- the date the goods or service were provided;
- the date of the invoice;
- the amounts being charged;
- VAT amount if applicable;
- the total amount owed.
This protects your invention, service or product from replication. There are several forms of intellectual property (IP).
- 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 check whether your idea already exists before developing your product.
- Trademarks - 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.
Advice and support
Further sources of guidance include:
- Business Support Helpline;
- Great Business;
- local councils;
- university careers and employability service.