10-step guide to start a new business
Many people have gone through redundancy this year. More are likely to do so because of Covid. If you are one of them, after recovering from the initial shock, you are probably re-evaluating your life and career. Despite economic uncertainty this is proving to be a popular time to start a new business. But if this is the moment you head out on your own, where do you start and what do you need to know?
#1 – Have a good idea
Successful businesses are not successful because someone had a ground-breaking idea or invention. They’re successful because the business owner implemented the idea effectively. Having said that, you do need to really think about your business idea.
- What is the problem you are trying to solve in the market?
- Who is the competition?
- Is there space in the market for you or is the marketplace saturated?
- What do you bring to the table that others don’t?
- How are you going to attract customers?
Do your research; it will be the most valuable time you’ll spend on your business.
#2 – Check your status
You must be a natural citizen or have the right immigration status to be allowed to set up a business in the UK. Without the correct visa, you won’t be able to complete all the paperwork. The type of visa you need depends on whether you’re living in the UK (having migrated from overseas) and want to set up here or if you’re not a citizen and don’t plan to become one.
#3 – Decide on the company’s legal status
There are a number of different ways you can run your business. They all have different advantages and disadvantages, depending on your circumstances and the type of business you want to set up:
- Sole Trader – You’re self-employed and run your own business. Under this structure, you are solely responsible for debts but can also keep any profits after tax. As a sole trader, you pay taxes through self-assessment. This is perhaps the least bureaucratic of the options, but you may find your personal and business finances get confused if you’re not very organised, and you could be left unprotected if things go wrong
- Partnership– You and a partner (or partners) own and run the business, are equally responsible for any debts and share any profits after tax. You and your partners are liable for each other’s misconduct or negligence, should there be any. You’ll need to choose a “nominated partner” – they’ll be responsible for managing the partnership’s tax returns and keeping business records
- Limited Partnership – You need to have one “general partner” and one “limited partner.” General partners control and manage the business, can make irreversible decisions, and apply for your business to act as an authorised contractual scheme (ACS). They are also liable for any debts the business can’t pay. A limited partner contributes an amount of money or property to the business when it is set up. While they are only responsible for debts up to the amount they provided, they can’t manage the business or remove their original contribution. A partner can be a person or a company
- Limited Liability Partnership (LLP) – In this case, a partner’s liability is only related to how much they invested in the business. You “incorporate” a limited liability partnership to run the business with two or more members, known as a “corporate member.” You pay taxes on your share of the profits, but you aren’t personally liable for debts the business cannot pay
- Private Limited Company – This type of business is privately managed, owned by shareholders, and run by directors (multiple or single). There are two types:
– Limited by shares – These usually make a profit. The company needs to be legally separate and have distinct finances from the people who run it, have shares or are shareholders. Profit can be retained after tax
– Limited by guarantee – These are usually “not for profit.” Like a company limited by shares, it needs to be legally separate and have distinct finances from the people who run it. The difference is that these need to have guarantors, a “guaranteed amount”, and any profits must be invested back into the company
Many organisations will only deal with limited companies. That’s because limited companies are required to adhere to Companies House regulations and publish details of their directors, registered address, and summary accounts.
#4 – Choose a name and address
There are different rules for naming your business based on the structure you have chosen, so make sure you check those on gov.co.uk to ensure your name complies.
You can’t select a name that’s already been taken. There are also restrictions on some words, so as to avoid giving a false impression of who you are or what you do. That said, you have more freedom to call a brand anything you like under your business name.
If you’re a sole trader and work from home, your business’ address will most likely be your home address. But if you run a business located outside of your home, in an office for instance, you may use that address. Some businesses use their accountant’s, lawyer’s or virtual addresses. The important thing is that you have access to mail there.
#5 – Plan your business
You may have heard otherwise from high-profile entrepreneurs, but a business plan is crucial to success. It uses the research you’ve done to map out your approach to your business. It also helps you to grow your company in a structured way. If you need funding, a plan is essential to securing it, whether you’re looking for investment or credit.
There are many great online resources to help you write a plan. It should include a month by month estimate of all costs and sales, itemised so you can see how and where you will turn a profit. It is not uncommon for people to realise they need to adjust their approach in order to make a profit when they are writing their business plan.
#6 – Get insured
Your business will need insurance. You’ll need protection against things such as theft and accidents. But you will also need liability insurance, covering you in case any harm comes to your customers or employees. The level of coverage and policy will depend on what kind of business you have and how it’s run. Sole traders don’t need the same type of insurance as a limited company. Insurance costs can vary hugely, so get multiple quotes and read the policy documents carefully.
#7 – Set up a business bank account
If you’re a Limited company, it is a legal requirement to open a bank account as your company is a separate entity from you. If you’re a sole trader you don’t have to, but you will find life a lot more complicated if you don’t. It will take precious time to unpick your expenses and you risk a fine from HMRC if you get it wrong. With a business bank account, this can be done automatically. New online business accounts, such as Amaiz, are quick to set up, and can all be done without visiting a branch. The costs are often small (under £10 per month) but make sure you take a good look at the account features they offer.
#8 – Keep your finances in order
Start as you mean to go on and ensure you set up systems that will scale with your business.
You can do your books yourself but hiring a bookkeeper at an early stage (even for a few hours a month) will make life a lot less stressful. Bookkeepers can manage invoicing, chase payments, and generally keep things in order.
When it comes to handing over your books to an accountant (a more expensive part of the process) to submit tax returns, you’ll have a better chance of keeping costs down.
I also recommend using accountancy software to automate your bookkeeping. There are many suppliers and this will become an increasing requirement for filing company accounts at HMRC over the next couple of years. Many software solutions charge a small fee per month and you should expect them to link to your bank account. Apps like Amaiz combine a business account with automated bookkeeping so small companies don’t need separate software.
>See also: Hiring an accountant: A small business guide
#9 – Pay your tax
You’ll have to register with HMRC for tax purposes when you start a new business. The good news is that you can easily complete this online.
#10 – Keep it legal
Make sure you hold any licences or permits you need to operate in your industry and consider regulatory issues such as health and safety. It is worth checking with relevant industry bodies – they are there to help you.
Start a new business
Setting up a new business is exciting. Some of today’s largest global businesses started out in homes and garages just a few years ago. Whether you want to grow that big, or simply provide yourself with a steady income doing something you enjoy, you’ll always remember these early days. It is at the beginning that you build the solid foundations you need. Best of luck!
Steve Taklalsingh is UK managing director business banking at Amaiz