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How to Start a Small Business

A brief introduction

Establishing a small business is a challenging undertaking. By taking it step by step, you can take on each challenge as it comes and hopefully avoid the pitfalls that many new businesses encounter.

Listed below are the essential steps to follow when setting up your Start a Small Business.

1. Develop a business plan

By having a business idea, you are taking the first step. If you are good at what you do, how can you make people pay for it?

Once you determine the demand for your product or service, you will need to determine how much competition there is. To do this, you’ll need to conduct market research, which can test your idea’s viability (and possibly give you new or different ones). When a commercial hobby or freelance work reaches a point where it has the potential to become a business, it may start as a business.

Once you have decided that your business could be profit-making, it is time to proceed.

2. Apply for self-employment status.

Although you may have filed tax returns before, you must notify HMRC as soon as possible after becoming self-employed (i.e. after starting your business). Registration for self-assessment is available here.

Congratulations! You have now been incorporated as a sole trader. There is a possibility that having a different business structure will benefit you.

No matter how your business structure is set up, you should maintain a separate business bank account so your personal and business finances are kept separate. Regardless of whether your business is a company, this is a legal requirement.

3. How should you structure your business?

Will you be operating a corporation or an LLC? The structure of a business is one of the most important decisions because it impacts everything from taxation to liability. Considering the other factors may be a good step to take before making a decision, but begin with your options in mind. Here are some:

  • As a sole proprietor
  • business or partnership
  • LLP
  • Private limited company
  • incorporated as a not-for-profit corporation

Your business operation will have legal and financial implications. Therefore, a Start a Small Business solicitor should also be consulted when choosing a business structure.

Find the top 10 best businesses in the UK here.

4. Pick a name

Check the availability of your preferred name online and on the Companies House website in particular. You must register your limited company at Companies House if you are starting one. Make sure your name is not already in use with their WebCHeck service.

Be sure to check the Trade Marks Register as well to ensure you won’t infringe any existing trademarks.

Be sure you can use the name you choose before you invest in any branded materials. Buy the appropriate domain name once your choice is confirmed. Additionally, you may want to purchase any similar URLs to prevent copycats.

5. Develop a business plan

Now is the time to create a written business plan if you don’t already have one. When seeking bank financing or investment, a business plan is usually required.

You should begin by determining your business model. Having established this, you can work on creating a plan to accomplish the desired outcome. It should include:

  • Defining your business objectives
  • describing your business strategy for achieving them
  • Provides a realistic action plan to demonstrate how this strategy will work in practice

In addition, a business plan should include:

  • A marketing and sales strategy
  • Financial projections (e.g., cash flow forecasts)

Learn how to write a business plan.

6. Establish a business insurance policy.

You must have the appropriate business insurance in place before your business can start working.

It is a legal requirement that all employers carry employers’ liability insurance (in case one of their employees becomes ill or becomes injured at work). A commercial motor insurance policy is also necessary if you use vehicles in your business.

You may also need the following depending on what kind of work you do:

  • General liability insurance
  • as well as professional indemnity insurance
  • cover commercial property
  • workers’ compensation

Consult an adviser who specializes in protection about getting the right cover for your business.

7. Maintain compliance.

It is imperative that your business is fully compliant – that is, it must adhere to all relevant legislation for the area in which you operate. If the business serves food, it must comply with food safety and hygiene laws, and if it handles customer data, it must comply with the Data Protection Act.

If the business performs certain activities, it may require a license. The licence finder on Gov.uk will help you find out if you need one.

Start a Small Business solicitor will help you comply with all the legal requirements.

8. Hire a competent accountant.

Even though it’s feasible to handle the accounts yourself in a Start a Small Business, it is rarely the best use of a boss’ time. A qualified accountant can also give you peace of mind that your finances are sound and that your business is paying all the necessary taxes.

Additionally, an accountant can assist you with registering for VAT. For companies with a certain level of turnover, this is mandatory, but it may make financial sense to do so voluntarily. Contact an accountant for more information.

9. Establish your business location.

Make a decision about where your business will be located – at your home or in a commercial building.

Your business may be subject to business rates if you rent or buy premises. Tenant responsibilities are also involved when renting office space.

Obtaining special permissions and/or insurance may be necessary if you plan to operate your business from your home. Visit Gov.UK to learn more.

Establishing your business in a designated area, known as an enterprise zone, may be able to offer you special rates and tax benefits. Learn more about enterprise zones.

10. Develop your brand.

There is more to it than just your logo and visual style. Your company represents much more to customers than just your logo. Consider the qualities you want people to associate with you – for example, reliability, quality, a sense of fun – and then work to build these qualities into your visual and written materials.

Use discretion, however. It may be appropriate for, say, a greetings card company to have fancy branding, but it may not be appropriate for a handyman company. Learn more about building your brand.

11. Organize your communications.

Be sure that your customers can reach you. They should be able to easily locate you. In the event that something goes wrong, you need to be able to talk to them.

A communication strategy would help you with this. Consider how you will handle things like:

  • Promotion and marketing
  • public relations
  • service to the customer
  • regarding complaints
  • via social media

Make sure you have the resources required for each of these – such as enough time (or staff) to engage with your customers.

12. Hire qualified employees.

What is the best time to hire staff? Most bosses would say “when you don’t have any alternative.”.

Permanent hires would be a major undertaking, so you should explore all other options first. Hire freelancers, subcontractors, and agency staff initially until it becomes clear that a permanent role makes more financial sense. Detailed business plans will help you answer this question.

Employers must:

  • Provide at least the minimum wage
  • Insurance coverage for employers
  • All eligible employees should be enrolled in a workplace pension plan
  • Provide statutory minimum sick and holiday pay
  • Maternity leave, paternity leave, and adoption leave should be paid
  • Employee development should be emphasized

Employers have a responsibility to provide these benefits to their employees.

An accountant can help you with key responsibilities such as payroll, employer National Insurance contributions, and employment contracts.

Learn more.

Request additional funding.

Is there a time when your Start a Small Business needs additional funding? During the initial setup phase, you may have to use your own resources, or at best a small business loan. After your business has been operating for a while and demonstrating profitability, you will be in a much stronger position to seek additional funding. Your credit rating will improve, and lenders and investors may be more willing to lend to you.

Finance for a limited company

You will have more funding options with a limited company. Either you can get a loan from a bank or from a P2P lender (such as Funding Circle or Ratesetter), or you can offer a share of your company in exchange for private equity.

Getting funding for a partnership or sole proprietorship

In the case of a sole trader or partnership, you cannot sell shares in your business, but you can still obtain funding through loans (see above).

Find out more about raising finance for your business here.

Learn how to support your friend’s small business here.

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