How do you set up a small business?

Many people haven’t the foggiest idea of how to go about setting up a small business from scratch. However, there is not as much to it as you might imagine. Remember that every small business founder had to start from somewhere, so read on to discover the essential things you need to have in place to give your venture every chance of commercial success.

What are the essentials for a new business proposition?

The most important thing you will need to run your own business is a business idea that you can sell. A good number of start-up enterprises are founded because someone has spotted an unfulfilled niche in the market which they think they can exploit. Other start-ups begin because a professional person stops working for a large company and decides to go self-employed as a freelancer. Nearly all such business ideas are worked out formally with a business plan that specifies what the enterprise will do, how much finance it will need to attract, where it will find potential customers and the wider commercial goals.

In other words, if you have a sound business idea and a good business plan that you can show to potential sources of finance – perhaps to secure a business loan – then you have all the essentials covered. That said, you might also consider the following elements to help your start-up get off the ground:

• An accountant or a simple bookkeeping software package.
• A business bank account so that matters of finance are kept separate from your personal accounting.
• Some market research that demonstrates your start-up is really viable.
• A limited company registration if you want to go into business with others rather than be a sole trader.
• A mission statement that outlines the values that will guide your current business plan as well as future growth.
• Business premises to work from if your new enterprise cannot be run from home until it gets going.

How much money is needed to set up a business?

The answer to the question depends on the business model you are setting up. Many sole traders start out in their spare time and require no external finance as they simply build up their customer base in a step-by-step fashion. It helps if you are a sole trader who sells services and skills rather than items you need to buy in, of course.

For new businesses which will require some working capital to buy in goods or sub-contractors, then you may need to look at going down the limited company registration route with business partners to raise funds. Having a limited company means you are not personally liable for debts that may accrue while you are working as a limited liability partnership. Of course, obtaining capital by going into partnership with others does not mean you have to operate as a limited company, but it can be beneficial.

Other than setting up as a limited company with financial partners, you could look for government-backed grants as a source of financial support in the early stages of a new business. Alternatively, you could look for an external investor who purchases equity (a share) in your company in return for dividends down the line. Many successful businesses have an investor who puts money in at the start to enable business owners to purchase the everyday essentials that all self-employed people need.

What are the advantages of setting up a business from scratch?

Some self-employed people do perfectly well in the long-term by taking over a small business or purchasing a franchise. This means that business planning becomes simpler because there is a pre-existing commercial model and business structure to work with. Deciding whether to register with Companies House as a limited company, identifying potential clients and choosing a company name are all taken care of. However, what you miss out on is flexibility.

If you start a new business for yourself from scratch, then you can do things your way. No one is there to tell you that your business name, brand identity and commercial ideas are wrong. Sometimes it takes the entrepreneurial spirit to break new ground in commerce, and this only ever really comes about when a business is started from scratch with novel approaches to marketing and product innovation which no one else has thought of before. Basically, a new enterprise will offer more advantages to you compared to taking over an existing small business if you have your own vision of what the venture should be about.

What kind of business models should newcomers consider employing?

If you have an innovative product idea or have identified a gap in the market for a certain type of service in your area, then you don’t really need to worry about particular business models. Some businesspeople just know what they are going to do and get on with it. Nevertheless, other people struggle to come up with an idea for how their business will function. In such cases, it is a good approach to look at the most common forms of new venture business models and to consider each on its merits. The most usual ones are:

• A business-related service whereby you act as a sub-contractor on short-term contracts. This is popular among IT professionals, legal advisors, bookkeepers, consultants and trainers, for example.
• An online business model. This is popular with people who want to run their enterprise from home and could involve blogging, video editing, running a webstore or working as a freelance website moderator.
• A business-to-consumer model. This approach means selling consumer products and services to the public and it is the equivalent of owning a shop even if you do all your selling elsewhere, perhaps in clients’ own homes.
• Freelancing. This means offering a professional service with a form of short-term contract. Essentially, you get paid piecemeal by the job you complete rather than via a set wage. Anyone from journalists to delivery drivers can run a business successfully on a freelance model.

Are there negative factors to consider when setting up a business?

It is fair to say that some people begin a business and never look back for the rest of their career. This is greatly rewarding when it happens, but the truth is that starting a new venture can be difficult at times. For instance, until you become established enough to cope with lean periods, cash flow can be a significant problem for enterprises which are just starting out. Part of that may be because you have yet to make a name for yourself and part of it could be because you don’t have sufficient budget to market yourself successfully. Either way, be prepared for some financially challenging times at the outset.

Another thing to consider is just how much time getting an enterprise off the ground takes. Yes, you may find that working for yourself offers greater flexibility but it also often means more demands on your time. This can mean making compromises with your social and family life in some cases. Furthermore, some businesspeople prefer the security of a job so they know exactly where they stand from month to month. That said, few entrepreneurs are really put off the potential downsides to running a small enterprise because the upsides by far outweigh them in the end.

What top tips should any new entrepreneur know?

• You don’t need an accountant for basic bookkeeping like paying bills and sending out invoices. Use accountants for more complex procedures like dealing with corporation tax or providing financial reports.
• You don’t need a company name or to register as a private limited company to operate as a sole trader. Many do so perfectly well under their own name or brand identity.
• You must keep HMRC up-to-date of your self-employed status for your own business even if you are also still employed full-time.
• Don’t show your business plan to potential competitors or they may make make life hard for you. However, doing so to someone you trust in business outside of your sector may mean you are able to garner some sound commercial advice.
• In order to complete a self-assessment tax return at the end of the financial year, you will need a unique tax reference (UTR) number from HMRC. This is not your National Insurance number so obtain it well ahead of the tax return deadline.
• Social media is a superb way to spread the word about your new enterprise and to attract customers. It is not just e-commerce platforms which do well out of marketing themselves this way – all new ventures can harness the usual social media sites to get low-cost publicity.