Thinking about starting a business? It's a big milestone, offering a chance to be your own boss and achieve financial independence. But the path to self-employment also comes with challenges, and for many, figuring out how to start a business in the first place can feel like the biggest hurdle.
The reality is, no matter where you are on your business journey there will be obstacles. The good news is that laying solid foundations by taking the right steps from the very beginning can help you overcome them. You’re certainly not alone in this. With over 4 million self-employed people in the UK, according to the Office for National Statistics, so many business owners have been exactly where you are now.
We know first-hand what it's like starting a business. Having been through the journey ourselves, and helping countless others get up and running, we understand the highs and lows you might face. That's why we've put together some practical tips and advice to help you get your business off the ground and really understand what it takes to succeed.
Business Ideas and Market Research
Cash Flow, Budgeting and Funding
Tax Registration and Compliance
Allowable Expenses and Tax Reliefs
The First Steps: Business Ideas and Market Research
Every new business begins with an idea, but a great idea alone isn't really enough. To set yourself up for success, you need to understand why your idea exists. Ask yourself: 'What problem am I trying to solve?' and 'Why does it matter?'
Once you're clear on the main purpose of your idea, you'll need to dig deeper into three key areas. These insights are essential for building a strong business from the ground up, helping you look closely at your potential customers, what the competition is doing, and the practicalities of your idea.
Understanding Your Market and Customers
A big part of starting any business is understanding your market and customers. This means knowing who your potential buyers are, what drives their decisions, and how their needs might change over time. Take the time to research what customers like, how they shop, and any problems they're facing.
By creating a clear picture of who your customers could be, you can shape what you offer, how you brand yourself, and the type of messaging that will give the best results. This sets the groundwork for your business to grow in a sustainable and focused way from day one.
Here's how to do it:
- Talk to your target audience: Chat with the people you want to sell to.
- Find patterns: Ask questions, run surveys, and use industry research to identify trends shaping your market.
- Create buyer personas: Build detailed profiles of your ideal customer.
- Identify the problem: Pinpoint the issues your product or service will fix.
- Check the competition: See how other businesses are meeting these needs. Find out where you can do better or offer something different.
- Use real data: Always try to back up your findings with facts.
Testing and Improving Your Idea
If you're starting a business to become self-employed, your idea is more than just a project or quick side hustle, it's likely going to become your sole income. That's a significant commitment and it means you'll want to make sure the idea not only works but can also last. So, before you invest a lot of time and money into your idea, it's wise to 'test the waters'.
Typically, this process includes:
- Getting feedback: Try your business idea on a small scale to see how people react.
- Making changes: Use what you learn to adjust and improve your approach.
- Check long-term potential: Make sure your idea can be profitable and sustainable over time.
Setting the Roadmap: Business Planning
A business plan serves as a guide for your whole business journey. It helps you navigate early decisions and secure the resources you need to grow. While putting one together might seem overwhelming at first, remember that you won't be starting from scratch. You'll use all of the information you gained from testing your business idea to shape a realistic, achievable plan tailored to your goals.
Your business plan should map out your strategy and cover these key areas:
- Executive Summary: A short overview of your entire plan, highlighting the main points.
- Company Overview: Think of your this as your business's brief introduction. It's where you tell people what your business is and what makes it unique. You'll also want to share what you aim to achieve and how your business actually makes money while providing something worthwhile to your customers.
- Market Analysis: This is where you put all that knowledge about your customers and competitors to use. Show you understand who your buyers are and what the market looks like.
- Products or Services: Clearly outline what you're selling.
- Structure and Operations: Explain how your business is set-up and who is in charge.
- Financial Projections: How much money do you expect to make and spend? This includes forecasts for sales, costs, and profit.
6 Key Elements of a Business Plan
The Business Name Game
Your business name is one of the first things people notice and one of the most lasting impression you'll make. It's one of the most recognisable parts of your business and can influence how people feel about you before they even know what you're selling.
Here's what to keep in mind when picking a business name:
- Make it memorable: Choose a name that’s easy to recognise and hard to forget.
- Reflect your brand: Does the name give a good idea of what your business is about or the feeling you want to create.
- Check availability: Before you get too attached, make sure the name isn't already being used.
- If you're forming a limited company, check with Companies House to see if it's available for registration.
- If you plan to have a website, make sure the domain name is free to register.
- Think long-term: Pick a name that won't limit you if your business grows or moves into
new areas later on.
Choosing Your Path: Business Structures
While all sole traders are self-employed, not every self-employed person operates as sole trader. Choosing your business structure is one of the most important decisions you'll make when starting out. It affects things like your legal liabilities, how you pay tax, and your administrative responsibilities.
It's easy to focus on the here and now, but when considering your options, it's worth thinking about your future plans too. If you think you'll need investors or want to grow your business quickly, setting up a limited company is usually a better fit. But if your aim is to keep things on the smaller side, being a sold trader could be perfectly fine.
Let's look at the main types of business structures:
- Sole Trader: Often the simplest way to set up a business, as a sole trader there is no distinction between you and your business. This mean you are personally responsible for any business debts, meaning you have unlimited personal liability.
- Limited Company: A limited company offers more protection because the company is legally separated from you. This means if the company ends up in debt, your personal risk is limited to the amount you've invested in the business.
- Partnerships: A partnership is formed when two or more people agree to run a business together and any profits or losses. While not a common choice for new businesses, it can be the right choice in certain situations. There are different types of partnerships and each some with its own level of risk.
No matter which business structure you choose, there will be specific requirements for registering your business with the relevant authorities, such as Companies House or HMRC. It's also important to be aware of the various deadlines for filing accounts, tax returns, and other essential documents as missing these can lead to penalties.
Money Matters: Cash Flow, Budgeting and Funding
Money is often a concern right from the start, both when you first become self-employed and especially when you're starting a business. From working out your first budget to handling all the expenses that come with running a business, financial pressures are one of the biggest realities for anyone going into business for themselves.
Managing Cash Flow
Effective cash flow management is essential for the health and longevity of any business. Think of it as the ebb and flow of money in and out of your business.
A common pitfall for many start-ups is focusing purely on sales figures. Even if your accounts show you're making money, you can still encounter financial difficulties if cash isn't available when you need it.
Managing your cash flow means being proactive and involves forecasting regularly, looking ahead 3 to 6 months. This way, you can anticipate any periods when cash might be little tight and plan accordingly.
Working with a Limited Budget
Starting business often means you'll be working with a tight budget, and that's not unusual! Less money doesn't mean less potential. In fact, it often helps you become more creative and adaptable, which are both really important for success.
- Make a Realistic Budget: Take the time to outline all your anticipated start-up costs, fixed expenses, and ongoing operational outgoings. Even with a limited budget, keeping track of every transaction gives you better financial control.
- Prioritise Essential Spending: Identify which expenses are absolutely necessary to get your business up and running and which ones can wait or be cut back. By prioritising these key areas, you'll protect your money and make sure you have what you need to operate effectively.
- Be Resourceful: Try to find smart ways to make your money go further and get the most out of every pound. Being flexible and open to different ideas not only save you cash but it also builds resilience into your business from the outset.
Securing Funding
Even with the best budgeting, most businesses need some form of funding to get off the ground or scale-up. There are several types of funding options available, including:
- Personal Savings: This is simply using your own money that you've saved up over time to get your business started. It's often the quickest way to get going as you don't need anyone else's approval.
- Friends & Family: You might borrow money from people you know well, like friends or relatives. They usually invest because they believe in you and your idea, often with more flexible terms than a bank.
- Bank Loans: This involves borrowing money from a bank, which you'll need to pay back with interest over a set period. You'll typically need a solid business plan and sometimes some security (like assets) to get one.
- Government Grants: These are sums of money given by the government or other public bodies, which you don't have to pay back. They often support businesses in specific industries or those that meet certain criteria, like creating jobs or innovating.
- Crowdfunding: With crowdfunding, you raise small amounts of money from a large number of people, usually through online platforms. People might contribute in exchange for a reward, a share in your business, or simply because they like your idea.
- Angel Investors: These are wealthy individuals who invest their own money into promising early-stage businesses, often in exchange for a share of the company.
- Venture Capital: Venture capital firms invest large sums of money into businesses with high growth potential, usually in exchange for a significant stake in the company.
When you're looking for money to fund your business, it's worth remembering that it's not just about the cash itself. An investor or lender who brings industry expertise, connections, or mentorship can be just as, if not more, valuable than simply the money they provide.
Bookkeeping and Accounting: Your Business's Backbone
Keeping on top of your money is a must for any business, big or small. It makes life much easier when it comes to understanding how you're performing and dealing with tax.
1. Separate Your Business and Personal Money
This is a big one! Open a dedicated business bank account. It might seem like a hassle, but it keeps your business income separate from your personal money. This makes accounting much clearer and a lot simpler when it comes to sorting out your taxes. Make sure all your business payments, both in and out, go through this account.
2. Maintaining Your Accounts
When it comes to keeping your business finances in order, there are two primary methods you'll encounter: cash basis accounting (LINK)and accrual accounting(LINK). Understanding which one applies to you is key to meeting your tax obligations.
For Sole Traders
As a sole trader, the default method for the 2024/2025 tax year is cash basis accounting, which means you record income and expenses only when money is received or paid out. However, you do have the option to use accruals accounting instead.
To stay compliant with HMRC, you'll need to track your income and expenses each year and complete your Self Assessment tax return. Many new sole traders find starting with a simple spreadsheet is the easiest way to keep everything organised, especially in the early days.
For Limited Companies
If you run a limited company, you'll use accrual accounting. This means you record income when you earn it (like when you do the work or send an invoice), and expenses when you incur them (like when you receive goods or services), even if money hasn't actually changed hands yet. This gives you a much clearer and more accurate picture of your company's financial situation at any point in time.
Using Accounting Software
As businesses grow, regardless of their structure, they often need a more robust way to manage their finances. That's when moving onto accounting software like Xero becomes a good idea. These systems can automate a lot of the tracking, reporting, and even help with invoicing, saving you time and reducing errors.
You don't have to wait until your business is huge to start using this software either. It can be a great way to learn how it all works while your business is still small and your transactions are straightforward.
3. Keep Proof of What You Do
Always hold onto documents for all your business dealings. This means receipts, invoices, bank statements. Anything that proves a transaction happened. HMRC can ask to see these at any time, so it's important to have them to back up your records.
What Records Do You Need to Keep?
HMRC has rules about what businesses must keep records of. Generally, you need to hold onto:
- All sales and income
- All business expenses
- VAT records (if your business is VAT registered)
- PAYE records (if you employ staff)
- Your personal income records
You can keep these records as digital copies or physical copies, or even both if it makes you feel safer. Either way works, just make sure they're organised and easy to find.
4. How Long to Keep Records
If you’re a sole trader or part of a partnership, make sure to keep all your business records for at least five years after the 31 January deadline following the end of the relevant tax year. Just to be on the safe side, we generally suggest holding onto them for six years.
However, if you're operating as a limited company, you'll need to retain your records for six years from the end of the financial year they relate to. This is a specific requirement for companies.
Navigating HMRC: Tax Registration and Compliance in the UK
Dealing with HMRC and understanding taxes can be stressful, especially when you're new to business ownership. But it's really about knowing which rules apply to your business type and keeping on top of deadlines.
In the UK, most new businesses decide to be either a sole trader or set up a limited company. Let's look closer at what each of these means when it comes to tax and compliance.
Sole Trader Tax Responsibilities
| Main Tax System |
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| What You Pay Tax On |
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| Key Deadlines & Payments |
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Limited Company Tax Responsibilities
| Company's Main Tax |
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| Company's Key Obligations |
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| Corporation Tax Payment Deadline |
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| Individual Shareholder Obligations |
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Additional Tax Considerations for Business Growth
When you’re starting out, it’s easy to focus on your immediate tax responsibilities, but it's important to look ahead to other tax considerations that come into play as your business grows. Understanding these potential obligations early can help you plan more effectively. These key considerations include:
Value Added Tax (VAT)
As your business expands and your sales increase, Value Added Tax often becomes a significant point to consider. VAT is a consumption tax added to the price of most goods and services in the UK.
When You Need to Register for VAT
You are required to register for VAT if your business's VAT taxable turnover (the total value of all your sales that are subject to VAT) goes over the VAT threshold. This figure can change, so it's always best to check the very latest amount directly on the HMRC website for accuracy.
Choosing to Register Voluntarily
Even if your turnover is below the threshold, you might choose to register for VAT voluntarily. This can be a smart move if:
- You buy a lot of goods or services for your business that include VAT, as you can reclaim it.
- Most of your customers are other VAT-registered businesses who can also reclaim the VAT you charge them.
- You want to make your business look more established.
VAT Returns
Once your business is registered for VAT, you'll need to submit regular VAT returns to HMRC, usually on a quarterly basis. These returns summarise the VAT you've charged on your sales and the VAT you've paid on your purchases.
Payroll and National Insurance
When your business grows to the point where you hire employees, you'll take on specific tax and compliance responsibilities related to their wages.
PAYE Compliance
As an employer, you'll be responsible for running a PAYE (Pay As You Earn) Scheme. This means you must calculate and deduct Income Tax and National Insurance Contributions directly from your employees' wages each payday.
These deductions, along with your employer's National Insurance contributions, must then be paid over to HMRC. You'll also need to submit regular reports to HMRC, known as Real Time Information (RTI) submissions, every time you pay your employees.
Pension Auto-Enrolment
It is a legal requirement for most employers to automatically enrol eligible employees into a workplace pension scheme. As the employer, you'll also need to contribute to this pension scheme, alongside deductions from your employees' pay.
Optimising Your Tax: Allowable Expenses and Reliefs
It's important to make sure your business is not paying more tax than it needs to. You can do this by understanding what 'allowable expenses' and other 'tax reliefs' are available to UK businesses.
What are Allowable Expenses?
Allowable expenses are costs your business pays that you can claim back against your income before tax. This reduces your profit, meaning you pay less tax.
To be 'allowable', any expenses needs to be 'wholly and exclusively' for business purposes. If something has a mix of business and personal use, you can only claim the business portion.
Common examples include:
- Office Costs: Stationery, business phone and internet bills, computer software.
- Travel: Fuel, parking, train fares, bus fares, and accommodation for business trips. If you use your own car, you can often claim mileage at a set rate.
- Staff Costs: Wages, salaries, bonuses, and contributions to staff pensions.
- Premises Costs: Rent, utility bills (gas, electricity, water) for your business location. If you work from home, you can claim a part of your household bills or use a simple 'flat rate'.
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Marketing & Advertising: Website costs, social media ads, business cards.
- Professional Fees: Business-related accountant or solicitor fees, bank charges, insurance.
- Goods/Materials: The cost of what you buy to sell or to make your products.
What are Tax Reliefs?
Beyond your day-to-day business expenses, HMRC offers various 'tax reliefs'. These are specific allowances, incentives, or deductions designed to reduce your overall tax bill or provide tax credits. They are often put in place to encourage certain types of investment, activities, or to support businesses in particular circumstances.
Capital Allowances
If you buy long-term assets for your business, such as machinery, equipment, or vehicles, you can claim back some or all of the cost against your taxable profits. This can significantly reduce your tax bill in the year of purchase.
For limited companies, certain qualifying new and second-hand plant and machinery purchases can benefit from Full Expensing, allowing 100% of the cost to be deducted from taxable profits in the same year.
Separately, all businesses, including sole traders, partnerships, and companies, can claim 100% immediate relief on most qualifying plant and machinery purchases, up to an annual limit, through the Annual Investment Allowance.
Research & Development (R&D) Relief
If your limited company is engaged in developing new products, processes, or services within a scientific or technological field, or making significant improvements to existing ones, you might qualify for valuable R&D tax relief. This relief allows companies to reduce their Corporation Tax bill, or for loss-making companies, claim a payable tax credit.
Trading Losses
Even businesses that are performing well can sometimes experience a trading loss in a given tax year. If your business finds itself in this situation, you could potentially use that loss to lower your tax by offsetting it against profits from other years or, in certain cases, against other types of income. The rules for using trading losses, such as carrying them forward to future profits, carrying them back for a tax refund on past profits, or offsetting against other income if you’re a sole trader, vary depending on how your business is set up and the specifics of your circumstances.
If you're unsure about what you can claim, or how to claim specific reliefs, it's always a good idea to speak with an accountant. They can help ensure you're being as tax-efficient as possible and staying compliant with HMRC rules.
Turning Challenges into Success
Starting a business is your chance to create something of your own. By taking the time to understand the important steps involved, you're setting yourself up for success. Every successful business faces challenges, it's just part of the journey. The key is how you handle them and how you turn those challenges into opportunities.
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