Small and Medium Enterprises (SMEs) account for 99.9% of businesses across the UK and employ around 16.6 million people.1 But no matter how good the idea, there are no guarantees of success and you’re probably already aware of the reasons why start-ups fail, which include cash flow problems and poor marketing.2
So how do you get off to a flying start and avoid running into problems? Our handy guide has been written to show you how to start a small business and steer you on the path to success.
Step one: Getting started
Before opening the shop door, either real or metaphorical, you first need to research the market. Few business ideas are completely original, so start by defining the product or service’s unique selling points (USPs). These normally include price, quality, quirkiness, the fact that it’s a family-run business, or anything else that will persuade people to choose you over your competitors.
Testing your idea on friends and family is a cost-effective way of getting feedback, although remember their opinions could be biased. For a broader and more objective view of potential demand, it’s sometimes worth commissioning market research and/or working with a business coach if you’ve the budget.
Your next step is to assess the competition and then see what you could do better. Standing out is always tricky – however, start-ups can win loyal customers by carving out a niche or even disrupting established players and industries.
Moving into untapped markets is a chance to become a pioneer in your field but it brings risks too, for example, misjudging demand for a product. Another issue is that a competitor may jump on the idea, learn from your errors and go on to become the market leader.
As you define your USPs, think about any other opportunities to increase revenue and reduce costs. A jeweler could consider an influencer campaign, while a café owner could run a home-delivery service in the local area.
Step two: Choose a name and establish the legal structure
Choosing a name for your business is a fun but nerve-wracking experience. You want something that is memorable, reflects what you do, attracts customers and will stand the test of time.
Start by asking friends and family what they think of your ideas and see if they have any suggestions too. Don’t worry if you can’t think of a quirky or clever pun either. A straightforward name (perhaps your own), telling people exactly what they can expect, is just as effective – for instance, John Doe Plastering Services or Coventry Yoga Studio.
Once you have a name, it’s time to decide on the structure of your business, which is important for legal and tax purposes. Always speak to an accountant and/or solicitor, who can advise you on the options we’ve outlined below.
Sole trader
A popular choice for tradespeople, you’re the sole business owner which means you keep all the profits, but are also liable for losses. Cost-effective and easy to set up, government guidelines require you to submit a self-assessment for HMRC and register for VAT if your turnover is more than the specified threshold.
Partnership
Another easy and low-cost option is a partnership, where two or more people manage and profit from the business. Like sole traders, you usually pay more tax and could run into difficulties if you fall out with the partners.
Limited company
Many SMEs are run as private limited companies, which means the owner’s personal and business finances are separate. Starting up a limited company helps you build a professional image, work with corporate clients, and reduce risk. Just as important is building a good business credit score, which helps secure finance and reassures suppliers that you’ll pay on time.
Limited liability partnership (LLP)
If you’re going into business with someone else, LLPs offer the benefits and drawbacks of a limited company and partnership. Designated members have a range of responsibilities, which include registering for self-assessment (as a business and individual), keeping accounting records and sending annual accounts to Companies House.
When setting up a limited company or LLP, you’ll first have to register the name with Companies House, however there are rules you must adhere to. For details on choosing a company name and how to register a company, visit the government website.
Step three: Secure funding
We’ve all heard of people founding businesses on a shoestring from their spare room, but there are always start-up costs.
Even if you’re not planning to employ anyone or have your own premises (yet), you’ll probably still need the basics, like a laptop and phone. Then, depending on the business, there’s marketing, a website, accountant (or accounting software) to consider too, plus paying your utility bills.
Unless you’re fortunate enough to have plenty of money in the bank already, funding is essential and the Government website has advice on start-up loans, venture capital schemes and other investment opportunities.
You could also opt for a traditional business loan, either online or in-branch at your bank, as long as you’re able to pay it back. Before applying, use a business loan calculator to work out exactly how much you’ll pay back (with interest), so you can budget during those make-or-break early months.
To access the best rates, it’s important to build a good business credit score. This takes time, however, tools like Experian My Business Profile not only allow you to see your business credit score, but also show the factors affecting your score, so you can take steps to improve it.
There are alternative funding and finance options too, including peer-to-peer lending (P2P) and crowd funding, along with Kickstarter for creative projects.
Last, but not least, your friends and family may be willing to invest or loan money, as well as time and skills in your new venture, for example, by building the website.
While this might seem like an easy or cost-effective route, always maintain a professional relationship and get professional contracts drawn up. Nobody wants to fall out with loved ones, but think about whether the services they offer genuinely adds value to your company and what would happen if the company had to be dissolved.
Step four: Building a brand
Ensuring your business stands out, especially in a crowded marketplace, is a challenge for any start-up – which is why a striking logo, brand colours, a website, social media presence and email marketing are all important. Digital technology means you can now build your online profile, and reach customers anywhere in the world, without always investing in costly leaflet print runs and ads in the local paper.
If you don’t have the budget to pay a marketing agency or freelance graphic designer, you’ll find plenty of free online tools, including logo generators and drag-and-drop website builders. Facebook is a good way to promote your business via a page and can be a relatively cost-effective way to run targeted ads.
Unless you’re working with professional marketers, you’ll need to test out your branding materials on friends, family and anyone else willing to help. See if the logo is memorable and check the website is user and mobile-friendly and contains essential information, such as contact details.
Buying a domain for your website and email address is relatively straightforward, cheap and ensures your business looks professional.
Email marketing helps you to reach a wide audience in minutes and get a good response, as long as your messages are well-targeted. We all know how frustrating it is to receive emails from companies offering products or services that are of no interest. Yet a well-timed email announcing the launch of a new business or special offer can be a powerful prompt to visit a website, shop and/or make a purchase.
If you’re new to email marketing, services such as B2B Prospector are a good place to start.
These services enable you to build and segment a database of customers based on location, turnover, industry type and more. Reassuringly, all our data is processed in accordance with the General Data Protection Regulation (GDPR).
Whatever channels you choose, make sure pictures are good quality, text is well-written and free of spelling and grammar errors, and that the content is interesting to your audience.
Step five: Prepare to launch
Having spent months (or even years) preparing, it’s finally time to launch your business.
Whether you’ll be a service-led business or selling tangible products, you don’t always need a big launch party, but you can get people talking online. As well as promoting the business via your own social media channels, enlist the support of friends and former colleagues, particularly on LinkedIn. As long as their business is not in direct competition with yours, many will be happy to share a post or endorse it.
Every business relies on a list of trusted suppliers and customers who will help you maintain positive cash flow, particularly in those first weeks and months when you don’t necessarily have a financial buffer.
Experian Business Express allows you to run credit checks and monitor any company you work with, so you can spot signs of trouble early on and make informed decisions. Financial problems, like County Court Judgments (CCJs) and bankruptcy, are flagged, which means you’re able to set credit limits, ask for upfront payment or even not work with those who pose a risk.
Next steps
Once your business is up-and-running, you won’t take your foot off the pedal for a minute. Along with your day-to-day work, the post-launch period will seem like an endless round of learning and responding to feedback from customers.
Whatever you’re looking forward to most, from taking on your first member of staff and setting your own hours to making money from your passion, it promises to be an exciting journey.
Your marketing efforts will continue, but just as important is checking and monitoring the credit score of existing and potential customers and suppliers, so your hard work isn’t compromised by late or non-existent payments. Another priority should be to build your own business credit score, which helps you get better rates on business credit cards, future loans and payment terms with customers.
With the right tools, investment and support in place, you’re on the road to generating an income, maintaining cash flow, turning a profit and growing sustainably.
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