If you are thinking of setting up a start-up, you need to know exactly what is involved.
Our six-step guide covers everything you need to know to start your own business.
Six points to set up a business
1. Business idea - Take time to think carefully about your business idea to make sure it is feasible;
2. Assess Your Situation - Understand Your Business Responsibilities;
3. Business plan - Make a detailed plan for your business, including how it will make money;
4. Research your business - look for potential clients and competitors;
5. Register a company - choose the right company structure;
6. Get business advice - learn where to find business advice and mentoring.
Whatever your reason for starting a business, from being your own boss to turning a hobby into a business, here are the steps you can take to give your start-up the best chance of success.
Step 1. Get your business idea correct
Business ideas can be based on new products and services or provide cheaper or better service or products than the competitors. Not all business ideas come out of nowhere, so if you're striving for a good concept to start your new business, start with brainstorming lots of ideas. Focus on identifying what people want and the problems they face, then think of ways to solve their problems or meet their needs.
Step 2. Assess your situation
Check carefully if you have the time and flexibility to start a business. Does starting a business fit in with family and other responsibilities? Will you run it full time or part-time with another job? The answers to these questions will help you choose the type of job that is right for you.
Setting and growing a startup takes time, hard work, and stamina, so it's important to be realistic about your situation. For example, if you are running a business part-time, you may want to consider hiring staff to help you when you're busy or in less demanding jobs.
Step 3. Plan your business
Make a detailed plan for the first five years of your business, including your marketing strategy and plan. Planning your business allows you to understand the business assumptions: how many customers you will need, how much you need to invoice, and how much the business will grow. These assumptions can be tested during market research to determine if they are valid.
Describe the market and target audience in your business plan and highlight the competition. Plan your prices, production costs, marketing and advertising expenses so that you can roughly predict your profits.
Don't think of a business plan as a rigid document - markets can change and you will have to be flexible - but it is a good way to keep your business organised and on track. You can predict where you want your business to go and when, or you will need to expand operations. For example, you may need to hire staff or rent office space in the future.
Step 4. Research the market
Research is vital to understanding your target market, your competition, and your industry. The results of your research will shape your business structure, resources, customer demographics, and pricing.
Interview your target audience to test whether your product or business idea is interesting. It is better to ask people you do not know, as a personal relationship can prejudge the answers. Focus groups are a good way to get feedback on your product and service - choose a small group of people based on certain attributes, such as age, career, gender, that you think fit your target audience. You can also ask potential customers to complete an online survey or visit potential customers to find out what they would like to see from your product or service.
Also be sure to research your competitors; you are looking for a market gap that your company can fill. Review your order service - how were you treated, how much were you charged, and how would you improve the service experience? Consider how your business can stand out from the competition. For example, if your competitors are well-known chains, you may need to come up with something else to get in.
Step 5. Select a business structure
Once you decide on the concept and name of the company, you will have to register it. There are various business structures that you can use, from your establishment as a sole trader to registration as a limited partnership. They all have their advantages and disadvantages, so it is worth making sure that you choose the best structure for your business.
- Starting up as a sole trader: Most startups are registered as sole traders because it is the easiest and cheapest way to start a new business. You should register with HMRC as soon as possible after starting work.
- Establishing a partnership: If you plan to work with people you know well, such as a spouse or relative, you may want to establish a formal partnership. With this business structure you share responsibility for your business with your partners and you need to agree on how responsibility and benefits will be shared. A business partnership is unlimited and therefore different from a limited liability company.
- Create a limited liability partnership: this is basically a business partnership combined with a limited liability company. This means that, as a limited liability company, you are only liable for trade debts up to the amount you have invested in the partnership. However, your tax situation is the same as with a trading company.
- Setting up as a limited company: A limited company is a private company owned by its shareholders, where you as the owner are liable for trade debts up to the value of your shares. Limited partnership finances are separate from yours, and taxes are more efficient for a limited company than for a sole trader. You’ll have to submit full accounts and pay Corporation Tax every year. Profits from a limited company can be drawn as a salary or as dividends and you’ll have to pay income tax on this too. The advantages of forming a limited company include the fact that obligations, such as debts or lawsuits, are limited to the company, which means that you are protected from personal bankruptcy in the event of company bankruptcy. A limited company can look more professional, and they are also easier to sell if you want to change direction later in life.
Step 6. Ask for help to get started
Finally, before you go, seek advice and guidance on starting and managing a small business. Business mentors can offer personalised advice tailored to the type of work you run. Great help is available, from mentor networks to government programs. Programs such as start-up loans include free tutoring support, offering a variety of tips to successful candidates. Persona Finance will be happy to provide services from company formation to consultations on how to expand your business.