With over 500,000 new companies registered each year, the UK is a thriving market for startups.
However, while registering is an essential step toward getting started, it is not a guarantee of success. Just 40% of companies survive the first three years. Why is this so? Since launching a profitable company necessitates careful planning and training.
Before you start, you must lay a solid framework that outlines your concept and unique value proposition (UVP), as well as how you will organise and market your venture and set up your business finances.
With this setup plan in place, you will feel prepared to take your idea to the next stage.
This guide on setting up a business contains six critical points, from market research to financing, which will help you start your venture.
- Focus on SWOT Analysis
- Create a business plan
- Select a legal framework for your business
- Create the ideal company brand/image
- Finance your venture
- Tax law
1. Focus on SWOT Analysis
Your business concept must solve a problem for people, fill a market gap, and have long-term value.
To determine if your concept is feasible, conduct a SWOT study. SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats.
Answer the following questions about your company concept:
- Strengths: What distinguishes your company from the competition? Do you have a better quality product? Are you able to compete on price? If you have more expertise or business experience?
- Weaknesses: What could be holding you back? Is there something that the competition does better? Do you have any flaws?
- Opportunities: Why is this the best time for your concept? What issues do customers have that you can help them with? Is it accurate that there are fewer competitors in this field? Is the market trending in your favour?
- Threats: What are the most likely threats to your firm? Is there a chance that the demand will change? Will regulatory changes trigger issues?
2. Create a business plan
A business plan is essential for understanding how to start a business in the UK in 2021. A great business plan will draw investors to your company. Take these measures to build a great business plan:
- Utilise your market analysis data and provide reliable data to support your proposal. It will clarify what you are selling, to whom you are selling, and your strategic advantage over your rival. Remember, you believe that your business proposal will be a success, and you are attempting to persuade investors of this belief in your venture.
- Have long-term goals; will demonstrate to investors the concrete prospects and success that the firm will have. Include minor plans that are likely to be met shortly. By emphasising these, you are establishing real targets to demonstrate the development and growth of your enterprise.
These are the 10 components of a business plan:
- Executive summary
- Business description
- Market research
- Competitor analysis
- Organisation structure
- Your product details
- Marketing plan
- Sales strategy
- Financial projections
3. Select a legal framework for your business
It is an essential part of starting a new business. There are many options for registering a business based on what will work best for you and your business.
Legal structures allow you to share financial responsibility or to be entirely responsible. Each of the three forms has its own set of tax issues as well as business responsibility. The following are the most popular choices for businesses:
- Sole Proprietor
Setting up your business as a sole trader could be the most straightforward option; however, your liability is the whole business and any business debts.
You are self-employed as a sole trader. It also implies that any gains generated are entirely for your benefit. However, you must also face any losses paid by the firm, which would affect your finances.
A sole trader usually submits a self-assessment tax return at the end of the tax year. The tax year runs from 06 April till 05 April of next year.
The partnership structure is an extension of the sole proprietorship structure.
A partnership is formed when two or more individuals want to start up a business. It ensures that both the liability and any gains are shared.
Both partners should pay tax on their share and share liability for any losses incurred by the company.
Like a sole trader, a partnership must submit its annual tax return online by 31 January on 31 October by paper.
- Limited Company
This is by far the most popular way of setting up a startup in the UK.
If your business does not go as expected, you can protect your assets by using this structure.
This method allows greater flexibility when you are planning to bring investors on board. If your business expenditure qualifies for Research and Development, then you can also claim R&D tax credits. Check our essential guide on the R&D tax credits here.
However, this structure necessitates additional paperwork as well as determining how you will be paid. There are just a few ways to get paid, such as dividends, salary, or share options, performance bonuses etc. Careful planning is required to ensure you optimise your taxes without breaking any laws.
If you are not sure, check our guide on sole trader vs Ltd company.
If you think your legal structure is not correct, it is never too late to change it.
4. Create the ideal company brand/image
One of the most important aspects of running a business is developing the correct company name and image.
When it comes to attracting the right clients, image and brand are everything. To build the best brand, you must first understand your consumers, what will appeal to them, and their desires and needs.
It would be best to think of your brand as a character representing everything your venture stands for.
It is critical to choose the right name and logo for your experience. When picking a name, keep it short, simple to spell, and memorable.
Choose a logo that not only accurately reflects your business but is also distinctive and one-of-a-kind.
5. Finance your venture
When it comes to raising funds for your venture, you have many choices.
First, you can use personal funds to finance your startup; in some cases, this is the only choice available to new business owners.
Freedom is involved in venture funding, but there is a high risk of losing your finances if the venture does not go as expected.
An alternate is to bring in the investors on board. You will part with your dear equity; however, you will have the cash and potentially expertise in return. Check out our guide on how to pitch your business idea to investors.
Other options include:
- Bank loans
Just like with any element of starting your enterprise, research is essential.
Determine the type of loan you want from the bank. Selling the idea and obtaining a bank loan may be difficult; you can be rejected many times.
However, if your pitch is excellent, you will sell the concept and obtain the necessary loan.
- Apply for a startup loan
These are government-backed loans varying from £5,000 to £25,000, with a fixed interest rate of 6% per year. These are advantageous since suitable applicants will also receive mentoring and assistance with a business plan.
- Angel investing
This is when angel investors invest in the business in return for a share of the profits. The most significant advantage is that the investment funds are coming in and the investor losing money if the venture does not go well, keeping your finances unaffected.
- Accelerator programs
There are many business accelerator programs in the UK. Pick one which invests in your industry. Some of the popular ones are Seedcamp, Startupbootcamp, Virgin money, JLB, Ther Sirius Programme, etc.
The crowdfunding concept has grown over the past decade.
6. Tax laws
They say taxes and death are inevitable.
You must be mindful of five separate tax laws: income tax, corporation tax, VAT, National insurance contributions, and business rates.
- Income tax
As the name suggests, you, as an employee, sole trader, partner or shareholder, are responsible for paying income tax. Tax rates start from 0%, progressing up to 45%. Rates can change, so keep an eye on the Chancellor budget spring and autumn statements.
- Corporation tax
Your limited company must pay tax on its profits. If the business is making a tax loss, then no taxes are due.
The current rate of corporation tax is 19%. However, it will be progressing up to 25%, depending upon your level of profits.
Value Added Tax, popularly know as VAT, is a class of indirect taxation. If your product and services fall within the VAT regulations, then you must charge VAT at applicable rates to all customers.
There are different types of VAT rates:
- Standard rated- 20%- most items would fall in this category.
- Zero-rated- 0%- for example, exports outside the country
- Reduced rate- 5%- currently on the hospitality sector
- Exempt- these are outside the scope of VAT. Like bank charges, insurance.
Besides, there are various schemes, like the Flat rate VAT scheme. Under this scheme, eligible businesses collect VAT at the standard rate (20%); however, they pay HMRC the same at a reduced rate. Reduced rates vary from the industry; for example, the rate for Photography business is 5%
- National Insutrance Contributions
As an employer, you must pay National Insurance Contributions (NIC). These are usually calculated when processing employee payroll and deposited along with the PAYE and employee NIC with HMRC.
- Business rates
If you have premises or are renting one, then you must pay business rates. The amount of rates you pay depends upon the property rateable value. Click here for more details.
Also, make sure you are up to date on the tax rates, which adjust with each new fiscal year.
Starting your venture can be challenging, and you must be analytical in your approach. With a setup plan in place, you will feel prepared to take your idea to the next stage.
This guide on growing a business contains six main points to help you create your venture, ranging from market analysis to financing.
Following these six steps will get you off to a successful start as an entrepreneur. Do your analysis and take advantage of the free resources available to help you along the way.