Starting Your Small Business

Some business advice tells you to make money from what you love – but this overlooks two other important elements: it needs to be profitable and something you’re good at.

For example, you might love making cakes and want to open a shop in your local village but it already has two bakeries. Maybe you like the idea of running a bed and breakfast business, but you have no experience of working in hospitality.

If you don’t have a firm idea of what your business will entail, ask yourself the following questions:

• What do you love to do?
• What do you hate to do?
• Can you think of something that would make those things easier?
• What are you good at?
• What do others come to you for advice about?
• Is there something you’ve always wanted to do, but lacked resources for?

These sorts of questions can lead you to an idea for your business. If you already have an idea, they might help you expand it. Once you have your idea, measure it against whether you’re good at it and if it’s profitable.

What kind of business should you start?

If you don’t already know the kind of business you want to start, consider these key factors to help you decide:

• What type of funding do you have?
• How much time do you have to invest in your business?
• Do you prefer to work from home or at an office or workshop?
• What are your interests and passions?
• Can you sell information (such as a course), rather than a product?
• What skills or expertise do you have?
• How fast do you need to scale your business?
• What kind of support do you have to start your business?
• Are you partnering with someone else?
• Does the franchise model make more sense to you?

Consider popular business ideas

You could also consider starting a franchise. This is where you run a business, but you have a licence to trade using the branding and business model of another company. Many fast food restaurants and takeaway services are set up in this way, for example.

Alternatively you could consider setting up an online business, such as starting a blog or running an online shop.

Many entrepreneurs spend more time focused on their product or service than they do getting to know the competition.

If you ever apply for funding for your business the bank or any potential lender or partner will want to know: what sets you (or your business idea) apart from the rest?

If market analysis indicates your product or service is saturated in your area, see if you can think of a different approach. For example, if you have a cleaning business rather than offering general cleaning services, you might look to specialise in homes with pets or on garage cleaning.

Primary research

Primary research means obtaining data directly from potential customers rather than basing your conclusions on past data. You can use questionnaires, surveys and interviews to learn what consumers want.

Surveying friends and family isn’t recommended unless they’re your target market. People who say they’d buy something and people who actually do are very different.

Secondary research

This is using existing sources of information, such as census data and other publicly available statistics, to gather information about your potential market.

Complete a SWOT analysis

SWOT stands for strengths, weaknesses, opportunities and threats. It’s a neat way of allowing you to look at how your product or idea might perform if taken to market, and can help you make decisions about the direction of your idea.

Your business idea might have some weaknesses that you hadn’t considered or there may be some opportunities to improve on a competitor’s product.

The tables below give examples of the sorts of questions you might ask in your SWOT analysis:

Asking pertinent questions during a SWOT analysis can help you identify and address weaknesses before they harm your new business.

A business plan is a dynamic document that serves as a roadmap for establishing a new business. It should present a simple way for potential investors to understand what your business does and where it’s headed.

Even if you intend to self-finance, a business plan can help you flesh out your idea and spot potential problems. When writing a well-rounded business plan, include the following sections:

• Executive summary: The executive summary should be the first item in the business plan – but it should be written last. It describes the proposed new business and highlights the goals of the company and the methods to achieve them
• Company description: The company description covers what problems your product or service solves and why your business or idea is best. For example, perhaps your background is in molecular engineering, and you’ve used that background to create a new type of athletic wear. You have the proper credentials to make the best material
• Market analysis: This section of the business plan analyses how well a company is positioned against its competitors. The market analysis should include target market, segmentation analysis, market size, growth rate and trends
• Organisation and structure: Write about the type of business organisation you expect, what risk management strategies you propose and who will staff the management team. What are their qualifications? Will you be a sole trader, a partnership or will it be a limited company, for example?
• Mission and goals: This section should contain a brief mission statement and detail what the business wishes to accomplish and the steps to get there. These goals should be SMART – that is: specific, measurable, action-orientated, realistic and time-bound
• Products or services: This section describes how your business will operate. It includes what products you’ll offer to consumers at the beginning of the business, how they compare to existing competitors, how much your products cost, who will be responsible for creating the products, how you’ll source materials and how much they cost to make
• Background summary: This portion of the business plan is the most time consuming to write. Compile and summarise any data, articles and research studies on trends that could positively and negatively affect your business or industry
• Marketing plan: The marketing plan identifies the characteristics of your product or service and summarises the SWOT analysis and analyses competitors. It also discusses how you’ll promote your business, how much money will be spent on marketing and how long the campaign is expected to last.
• Financial plan: The financial plan is perhaps the core of the business plan because – without money – the business cannot move forward. Include a proposed budget in your financial plan along with projected financial statements, such as an income statement, a balance sheet and a statement of cash flows. Usually, five years of projected financial statements are acceptable. This section is also where you should include your funding request if you’re looking for outside funding.

Establish an exit strategy

An exit strategy is important for any business that is seeking funding because it outlines how you’ll sell the company or transfer ownership if you decide to retire or move on to other projects.

An exit strategy also allows you to get the most value out of your business when it’s time to sell. There are a few different options for exiting a business, and the best option for you depends on your goals and circumstances.The most common exit strategies are:

• Selling the business to another party
• Passing the business down to family members
• Liquidating the business assets
• Closing the doors and walking away

Develop a scalable business model

As your small business grows, it’s important to have a scalable business model so that you can accommodate growing numbers of customers without incurring additional costs.

A scalable business model is one that can be replicated easily to serve more customers without a significant increase in expenses. Some common scalable business models include:

• Subscription-based businesses
• Businesses that sell digital products
• Franchise businesses

Think about tax planning

When setting up your business, consider how you want to structure it. The structure or set up you opt for will impact on how your business is taxed – and how much tax you’ll pay – plus whether your personal assets will be at risk if the business fails.

There are three types of small business set up: sole trader, partnership or limited company. The set up you go for will depend on what type of business you have and how you want to run it.

Sole trader

This is the simplest set up for your business. You will need to register as a sole trader with HMRC (the tax office). It’s important to be aware that as a sole trader you are personally liable for any business debts.

As a sole trader you’re required by law to pay tax through the self-assessment tax system. This means you must file a tax return every year to notify HMRC of your earnings. To do this you must first register for self-assessment.

Partnership

A partnership is the simplest way for two or more people to run a business together. You’ll share responsibility for your business’s debts as well as its profits and losses.

They will be accounting responsibilities and you will need to register with HMRC. Under a partnership each partner will have to pay tax on their portion of the business’s profits through a personal self assessment tax return each year. A nominated partner must also submit a partnership tax return to HMRC.

Limited company

If you decide to form a limited company, the finances and taxation of your business will be separate to your own personal finances.

But with this option there will be more accounting and management responsibilities and requirements. Many business owners who choose this route use an accountant or tax advisor to help with these arrangements, but you can do it yourself. Limited companies must register with Companies House and HMRC.

Once your business has a turnover of at least £85,000 you must also register to pay VAT (Value Added Tax). This applies whether you’re a sole trader, partnership or limited company.

You can find information about business structures and the tax implications on the government website at Gov.uk.

There are usually legal issues to address when starting a business. The following is a good checklist of items to consider when establishing your business:

• Choose your business name
• Register with Companies House (for limited companies)
• Register your business with HMRC
• Apply for the required permits or licences necessary for your business.

You may need a licence or permit if you want to be a street trader, if you plan to sell food or alcohol, or if you want to play music, for example.

Contact your local authority or council to see what the legal requirements are for your business.

This is a big and ongoing job which can be broken down into several steps.

Open a business bank account

It’s important to keep your business and personal finances separate, so research into the best business bank accounts to suit your needs. This account can be used for your business transactions, such as paying suppliers and invoicing customers. You might also consider getting a business credit card to help with monthly cash flow.

Accounting software

Think about whether or not you’ll need to use the services of an accountant, or if there is suitable software you can use. You can use different software packages, and most will keep track of your expenditure and income, generate invoices, run reports and calculate tax liabilities.

Insurance

You will usually need insurance for your business – even if you’re home based and you don’t have any employees. Speak to an independent insurance broker to find out what insurances might apply to your business and appropriate levels of cover for your needs.

Here are the business insurances to consider:

• Liability insurance – which protects your business against third-party claims of bodily injury, property damage and personal injury such as defamation or false advertising
• Property insurance – which covers the physical assets of your business, including your office space, equipment and inventory
• Business interruption insurance – which pays for the loss of income if your business is forced to close temporarily due to a covered event such as a natural disaster
• Product liability insurance – which protects against claims that your products caused bodily injury or property damage.
• Employer liability insurance – which covers you against claims from employees alleging discrimination or wrongful termination. This policy will also often cover medical expenses and income replacement for employees who are injured on the job.

There are many different ways to fund your business—some require considerable effort, while others are easier to obtain. Two categories of funding exist: internal and external.

Internal funding includes:

• Personal savings
• The right credit cards
• Funds from friends and family

If you finance the business with your own funds or with credit cards, you have to pay the debt on the credit cards and you’ll lose a chunk of your wealth if the business fails.

However, by allowing your family members or friends to invest in your business, you are risking damaging those relationships if the company goes under and you can’t pay them back.

Business owners who want to minimise such risks may consider external funding. You might want to get a small business loan, for example, or try to find a business grant.

External funding includes:

• Small business loans
• Small business grants
• Start-up investors
• Venture capital
• Crowdfunding.

Small businesses may have to use a combination of several sources of capital. Consider how much money is needed, how long it will take before the company can repay it and how risk-tolerant you are.

Funding ideas might include the following:

• Invoice factoring: With invoice factoring you can sell your unpaid invoices to a third party at a discount. The invoice factoring market is not regulated
• Business credit cards: You can apply for a business credit card to access credit and manage cash flow. Credit limits and interest rates will be based on your business’s revenue, credit score and financial history
• Equipment financing: If you need to purchase expensive equipment for your business, you could finance it with a loan or lease
• Small business loans: Offered by a range of lenders, these can be used for working capital, inventory or supplies and machinery or equipment. Being accepted for a loan will depend on your business revenue and credit score. Small start-up loans are also available from the Government, so find out if your business venture is eligible
• Grants: A small business grant is different to a loan in that you won’t have to pay it back. But they can be difficult to find and obtain. Some government grants are available, although many offer money for specific things, such as grants to take on an apprentice or to help rural businesses upgrade their broadband. Charity The Prince’s Trust has some grant funding for businesses set up by young people. The National Lottery Heritage Fund also offers grants
• Crowdfunding: With this type of innovative finance you can raise money from a large group of people, usually by way of an online platform, by soliciting donations or selling equity in your company.

Choose the right funding source for your business by considering the amount of money you need, the time frame for repayment and your tolerance for risk.

Business tools can help make your life easier and make your business run more smoothly. The right tools can help you save time, automate tasks and make better decisions.

Consider the following tools in your arsenal:

• Accounting software: Track your business income and expenses, prepare financial statements and pay taxes
• Customer relationship management software (CRM): This can help you manage your customer relationships, track sales and marketing data, for example, and automate tasks like customer service and follow-ups
• Project management software: Plan, execute and track projects. It can also be used to manage employee tasks and allocate resources
• Card payment technology: This will allow you to accept credit card payments from customers
• Point of sale technology: A system that allows you to process customer payments. Some accounting software and CRM software will have POS features built-in
• Getting a VPN: A VPN or Virtual Private Network – provides a secure, private connection between your computer and the internet. Choosing the best VPN is important as it handles sensitive data, such as customer details and financial information
• Merchant services: When customers make a purchase, the money is deposited into your business account. You can also use merchant services to set up recurring billing or subscription payments
• Email hosting: This allows you to create a professional email address with your own domain name.

Many business owners spend so much money creating their products that there’s nothing left in the marketing budget by the time it comes to launch. Alternatively, they’ve spent so much time developing the product that marketing is an afterthought.

Here are some points to consider around marketing your new business.

Create a website: Even if you’re a bricks-and-mortar business, having a website is usually essential. Creating a website doesn’t take long either—you can have one done in as little as a weekend.

You can make a standard information website or an e-commerce site, which enables you to sell products online. If you sell products or services offline, include a clear page on your site where customers can find your locations and trading hours.

Other pages to add include an “About Us” page, product or service pages including your pricing, frequently asked questions (FAQs), a blog and contact information.

Optimise for SEO: After getting a website or e-commerce store, focus on optimising it for search engines (SEO). This basically just means that when potential customers search in Google for specific keywords for your products, the search engine or Google will point them to your site. SEO is a long-term strategy, so don’t expect a ton of traffic from search engines initially—even if you’re using all the right keywords.

Create relevant content: Provide quality digital content on your site that makes it easy for customers to find the correct answers to their questions. Content marketing ideas include videos, customer testimonials, blog posts and demos. Consider content marketing one of the most critical tasks on your daily to-do list. This is used in conjunction with posting on social media.

Get listed in online directories: Customers use online directories to find the goods and services they need. Include your business in as many relevant directories as possible. You can also create listings for your business on specific directories that focus on your industry.

Develop a social media strategy: Your potential customers are using social media every day—you need to be there too. Post content that’s interesting and relevant to your audience. Use social media to drive traffic back to your website where customers can learn more about what you do and buy your products or services. You don’t necessarily need to be on every social media platform available.

However, you should have a presence on Facebook and Instagram because they offer e-commerce features that allow you to sell directly from your social media accounts. Both of these platforms have free ad training to help you market your business.

To scale your business, you need to grow your customer base and revenue. This can be done by expanding your marketing efforts, improving your product or service, collaborating with other creators or adding new products or services that complement what you already offer.

Think about ways you can automate or outsource certain tasks so you can focus on scaling the business.

You can use technology to automate certain business processes, including accounting, email marketing and lead generation. Doing this will give you more time to focus on other aspects of your business.

When scaling your business, it’s important to keep an eye on your finances and keep costs low to ensure you’re still profitable. If you’re not making enough money to cover your costs, you need to either reduce your expenses or find other ways to increase your revenue.

Build a team

As your business grows, you’ll need to delegate tasks and put together a team of people who can help you run the day-to-day operations. This might include hiring additional staff, contractors or freelancers.

Resources for building a team include:

• Hiring platforms: To find the right candidates, hiring platforms can help you post job descriptions, screen résumés and conduct video interviews
• Job boards: Job boards allow you to post open positions for free
• Social media: You can also use social media platforms such as LinkedIn and Facebook to find potential employees
• Freelance platforms: These can help you find talented freelancers for one-time or short-term projects. You could also outsource certain tasks, such as customer service, social media marketing or bookkeeping.

You might also consider partnering with other businesses in your industry. For example, if you’re a wedding planner, you could partner with a florist, photographer, catering company or venue. This way, you can offer your customers a one-stop shop for all their wedding needs.

Another example is an e-commerce store that partners with a distribution business. This type of partnership can help you save money on shipping and storage costs, and it can also help you get your products to your customers faster.

To find potential partnerships, search for businesses in your industry that complement what you do. For example, if you’re a web designer, you could partner with a digital marketing agency.

You can also search for businesses that serve the same target market as you but offer different products or services. For example, if you sell women’s clothing, you could partner with a jewellery store or a hairdresser.

Starting a small business takes time, effort and perseverance. But if you’re willing to put in the work, it can be a great way to achieve your dreams and goals. Be sure to do your research, create a solid business plan and pivot when you need to along the way. Once you’re operational, don’t forget to stay focused and organised so you can continue to expand your business.