Advice for small business startups in the UK
This article is about advice for small business startups in the UK, and has been written by Russell Bowyer.
So you’ve decided to start your own small business. But now you probably have more questions than you ever did when you had a job.
The learning curve for any new entrepreneur is very steep. But it’s best to learn from those that have been there and done it.
I’ve started many businesses, as well as bought, invested and sold businesses. So I’ve come across most situations in my experience.
So where do you begin?
Choosing a company name
Coming up with a company name can be a challenge. These days this is made more difficult with the need to link the name to a website. A website needs to have an appropriate domain name. See below for more on this subject.
When you choose a business name, it needs to be easy for people to remember. Don’t make the name too long.
If you make is more than two or possibly three words, you will regret it later. When you have to tell people your company name or complete forms etc., it’s better if the name is short.
What type of business do you set up?
Before you begin, you’ll need to decide on the type of business you intend to run. There are essentially four types of business, which are:
Sole trader business
This is the easiest type of business to set up from the outset. A sole trader business requires the least amount of paperwork. There is little red tape in setting up and running a sole trader business too. But you will need to set up a new business bank account to trade with.
You will also need to register your new business with the Inland Revenue or HMRC. To find information on sole trader tax please see HMRC ‘Set up as a sole trader.’
With a sole trader you will be personally taxed on the profits of the business, after your personal tax allowances. This will be assessed through the process of submitting your own personal tax return.
The downside of operating as a sole trader is that you are offered no protection should the business go wrong. You will be held liable for any debts the business incurs. You could also be personally liable where something goes wrong and you business is sued for money. However, I recommend taking out an appropriate insurance policy to cover this eventuality, like Professional Indemnity Insurance.
A partnership is similar to a sole trade in so far as the business does not afford you any financial protection. However, a partnership allows for more than one business owner. Although you must be aware that you will be held liable ‘jointly and severally’ with all the other partners. You can be held liable for the other partners actions or any debts they incur in the business.
Of course you’ll only be able to set up a partnership where you intend to go into business with at least one other person.
Like with a sole trader, you’ll need to set up a separate business bank account and register the partnership with HMRC. With a partnership, you will be taxed on your share of the profits of the business. You will need to separately register with HMRC and submit your own personal tax return too.
For more guidance on setting up a partnership and the tax information please see HMRC ‘Set up a business partnership.’
Taking out sufficient insurance is always advisable to protect against things that can and sometimes do go wrong.
Limited liability partnership
A limited liability partnership (LLP) is a halfway house between a partnership above and a limited company below.
The benefit of a LLPs is that the partners are afforded limited liability protection, should anything go wrong with the business.
There is some guidance her on Companies House for LLPs -‘Guidance for limited companies, partnerships and other company types.’
Limited company business
The last option is for you to set up a limited company. A limited company is a separate legal entity to you and is governed by strict company rules laid down by the UK Government. You can find out a bit more information about limited companies and the rules at Companies House.
The red tape and administration associated with a limited company is much higher than all the other business types.
A limited company is also separate for tax purposes. The profits are taxed under Corporation Tax and on HMRC website there’s an overview of this tax here – ‘Corporation Tax.’
For you to take money out of a company you can either do this where the company pays the tax under Pay As You Earn, like you have done in your employment. Alternatively, you can draw a dividend from the company and pay tax on this through submitting your personal tax return.
With a limited company you will be afforded limit liability protection through what’s known as the ‘veil of incorporation.‘
Arguably a limited company is the best form of business to use to look professional in the eyes of your customers.
Other taxes to consider in business
The other important tax to consider for your business is VAT. Depending on your customer base, don’t only decide on this purely upon the turnover thresholds.
I would recommend registering for VAT even if you haven’t already gone over the VAT threshold (assuming your customers can claim the VAT). My reasoning for this, is customer perception. If you are not VAT registered, customers will already know you are very small. Whereas if you register for VAT they will not know what your turnover is.
On the other side of this coin, if your customers are individuals who cannot claim the VAT, then I would say wait until you reach the VAT threshold. Otherwise your goods and services will become 20% more expensive right away.
Raising finance and coming up with your working capital
No matter how small the business, it will need some seed capital to begin with. Depending on the level of investment required, will depend on where you raise this from.
It may be that you intend to put all the money into the business your self. This may have come from redundancy or from savings you have.
Alternatively, you may decide to raise money using your house as security, to put money into the business.
Depending on the type of business you intend to trade with, will depend on what other sources of finance are available to you.
For example, there are more investment options open to a limited company. It’s far easier to raise finance in the form of ‘Investment Capital’ by selling shares in the company. This is something that can’t be done with the other forms of business.
When you set up your bank account you should also speak with the bank about what finance options are open to you.
For example, if you intend to buy plant, equipment and vehicles, these can be financed using asset finance. This type of finance can be obtained from your bank, or the supplier may be able to offer this to you.
What about crowd funding?
There is also Crowd Funding available to businesses. Although this can be more of a challenge for a new business, as some require two to three years trading history. However, there are other forms of crowd funding outside of debt and equity. These involve the pre-selling your products prior to manufacture, which means your customers are funding the set up.
This form of funding has proved to be extremely successful and is a growing phenomenon.
Before you look for finance from either an investor or a bank, you will need to prepare a business plan and a set of cash flow and profit forecasts.
You can either do this yourself with software like Cash Forecaster or go to an accountant. You’ll probably need an accountant to prepare your accounts for you and to help you with your tax too.
Company website, marketing and business stationery
No company can be without a website and email address. Don’t be cheap and use an email address with something like gmail or hotmail at the end, as this is not professional. For example, the domain name of this site is www.in-business.org.uk.
Any email address associated with this business will read: firstname.lastname@example.org or email@example.com. This is instead of firstname.lastname@example.org, which does not look good from a marketing perspective, as the company looks small.
It’s important to have your own domain name. So at the outset when you are choosing a business name, you will need to check the availability of the domain too. If you go onto to sites like 123-reg or Godaddy, they have a search facility to see what’s available.
These days it is much harder to get a unique domain, as there are so many people registering everything under the sun. But you may be able to use hyphens in the name to get the one you want. But remember, if you need to explain to someone what your email address is, whatever domain name you choose, this is what you will have to explain.
What marketing should you do?
Marketing your new business is key to getting it off the ground and getting your first customers. This goes hand in hand with your company stationery and the design of your logo and brochures, plus a good functioning website.
You will need to decide on what method or methods you are going to use to market your business. This can range from online social media and pay per click and SEO (Search Engine Optimisation) to sending out letters, paper advertising and radio or TV. You may even choose to cold call too and don’t forget business networking.
The amount of spend will depend on your budget and how quickly you want to expand your business.
Make sure you focus on customer service right from the outset, as this is key to any successful business.
Taking out the right insurance
As already mention, it’s important to take out insurance. I’d recommend speaking with an insurance broker to get the best advice on this.
In the next topic I discuss taking on staff. It is a legal requirement to have Public and Employers Insurance in the UK. This is a comprehensive policy which is designed to protect you when and if things go wrong.
This is why it’s so important to speak to a broker, to make sure you get the right insurance in place.
Taking on the right staff in your new start up business to avoid nightmares
Staffing a business is crucial and getting the right people can make or break a business. I have had my fair share of both good and bad staff and everything in between.
The saying ‘Hire slowly fire fast‘ is very true. Take your time choosing the right people.
Having the wrong person in your business can be costly and will waste so much time. Where you are employing customer-facing staff, I always like to operate the ‘Group Interview’ process.’
This is where you have at least four people in the interview at the same time, and it works really well.
I would also advise that you take on the services of an HR (Human Resources) consultant. Get them to help you with your employment contracts (a legal must) and then to guide you if and when things go wrong.
It you take on some one on a monthly retainer you can get this for under £200 per month.
Accounts, finances and invoicing for your new business
You will need to choose how you keep your accounting records. This is important for a number of reasons. The first reason is it’s a legal requirement to keep a record of your business finances. There are many accounting packages out there and you will need to make your choice. I would definitely recommend using web-based online software. This makes it easy to operate from anywhere.
Don’t use excel spreadsheets to run your accounts with, as this could end up with you having a costly accounts bill.
The second important reason for having good accounting software is for raising invoices to your customers. You must get these raised as fast as possible to lessen the sales cycle of your accounts receivable.
If you take on an accountant, they will be able to recommend an accounts package to you. They will normally recommend one that they are familiar with. They will also advise on one that links to their accounts production software.
Other business software requirements
In addition to accounting software and cash forecasting software, your business will need other forms of software too.
I’d always recommend some form of CRM (Customer Relationship Management) software to run your customer process well. It’s even better if this links via an API to your accounts software too.
You will probably need top buy the usual office software for preparing spreadsheets and letter documents etc. Plus any other software that may be specific to your type of business operation.
The old adage, location, location, location holds true for business today as it always has done. However, this will depend on the type of business you are going to operate.
If the business is internet based, then where you are located is irrelevant. You could even operate it from your front room if you liked.
However, if you are setting up a shop type business, then the location of your shop is very important to get the foot fall.
If your business is going to be a delivery business or will be manufacturing, then it can be located on an industrial estate. Industrial estates tend to be cheaper rents than high street locations.
Business support and mentoring
Finally, getting the necessary help and support is key. It can be lonely at the top. Being able to speak with either like-minded people or with advisers can make all the difference.
I’ve already mentioned getting a good accountant and tax adviser, together with an HR consultant. You may also wish to engage with a business mentor and/or coach. They will be able to help guide you through the maze of a start up business and help to keep you on track.
A mentor or business coach will be able to support you in your new journey. They will have the knowledge and experience that you have yet to gain.
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