The transformation of the business world by digitalisation brought a lot of freedom for people who are looking to establish their businesses.
Recent developments in technology accelerated innovation, maybe a little because the same developments created numerous problems that need to be solved. Of course, other factors drove innovation, prepared the right circumstances for more SMEs to pop up, increased in the number of entrepreneurs such as government incentives, availability of private funding, and recently COVID-19 pandemic.
Almost all of the metropolitans around the world like Berlin, New York, Los Angeles, Istanbul, and Amsterdam established unique startup and SME ecosystems. They created their global brands, unicorns, and exceptional success stories.
You’re one of the most advantageous places if you’re looking to start your business in London or the UK in general. Sure, there is a lot of competition, but so are the opportunities. The number of SMEs at the start of 2020 was nearly 6 million in the UK, and almost three out of four of them did not employ anyone aside from the owners, according to a report published by Department for Business, Innovation & Skills on October 2020. The report also shows that 35% of the UK business population is in London (1.1 million) and the South East (932,000).
1. What Are The Different Types Of Small Business Structures?
You should decide which type of business structure you want to build. Do you want to keep it simple, small, and local? Or do you want to be a future global enterprise?
There are three types of business structures you can choose from whichever fits your short-term or long-term goals you are trying to achieve. All of them have their pros and cons of tax regulations, limitations, and employment aspects. You have to pick the best one for you so you won’t have any problems if you want to change the size and goals of your business.
It’s the simplest form of business structure. There’s no difference between your own and your company’s assets, including the ones you jointly-owned with another person.
You can start your business as a sole trader if you don’t plan to employ anyone, but still, you can have sub-contractors if you need additional support with your clients’ work, as well as with your accounting and financial management. Also, you can work as an employee during the day and run your own business during the evening.
You have the right to keep the profit of your company as income but you’re obliged to pay tax and national insurance by filling out a Self Assessment Tax Return.
You can understand by the name that this type of a structure requires two or more people to run a business. A partnership is roughly a joint of sole-traders. All partners share risks and achievements; they have responsibilities and liabilities to one another. Each partner is considered self-employed and pays their taxes according to their share in the business.
The main difference between a sole-trader, a partnership, and a limited company is that a limited company is another legal entity other than its owner(s). There are two types of limited companies. They are limited by shares or limited by guarantee. A company that is limited by share;
- is for-profit
- is legally separate from the people who run it
- has separate finances from your personal ones
- has shares and shareholders
- can keep any profits it makes after paying tax
A company that is limited by guarantee:
- is not-for-profit
- is legally separate from the people who run it
- has separate finances from your personal ones
- has guarantors and a ‘guaranteed amount’
- invests profits it makes back into the company
2. How Much Does It Cost to Start A Business In The UK?
The cost of starting a business in the UK depends on which type of company you decide to form. The amount you need to start your company is not much but you might want to consider getting an accountant, a financial advisor, and a business mentor. Also, there will be expenses if you want to rent physical space for your office. The equipment you need to buy and use at home will push up the bills, even though you decide to work from home as a sole trader.
Other expenses of starting a business include but are not limited to business insurance, HR, and marketing.
A research conducted in 2016 shows a UK startup spends nearly £23,000 in its first year but this doesn’t necessarily mean that you have to spend thousands of Pounds. The Telegraph reports that the founder of bagmaker The Cambridge Satchel Company, Julie Deane spent only £600 in her first year. There are much more expensive starters, too, such as Magmatic’s Rob Law who spent £60,000 in his first year.
3. What Are The Steps To Start A Small Business In London?
It’s time to take the steps required to create your own business when you feel confident about the services or goods you’re selling, and of course, your finances.
Consider Your Small Business Structure
You need to follow similar but different paths to set up your business depending on the business structure which is best for you. This is also the first step to start your business. There are roughly four steps:
- Choose the right business structure for you
- Choose the name you want to operate under
- Check which records you have to keep
- Register for tax
Each step has its own complex set of necessities depending on your business structure. You should consider the following steps if you want to be more prepared for what’s coming.
Define Your Unique Selling Point
Your unique selling point (USP) doesn’t have to be a peculiar product, service, nor a solution. Your lower-than-average price might be a special strength that could get you new leads, too.
What’s important about your USP is its differentiating factor in the market that will give you a competitive advantage.
You should define your target audience and how they will avail you and your company when you try to find out what your USP is, so your potential customers should understand the benefits of working with you clearly.
It’s always a good idea to review your USPs regularly to enhance the performance of your business.
Consider Finding A Business Mentor
Most of the entrepreneurs might have experience as an employee and think that they know the market they’re about to get in well enough. It’s always for your benefit to be a little humble but not overconfident, even if you spent years in a market. Try to find other entrepreneurs and SME owners who have been trading in your market for years.
There are many ways to find a business mentor. You can go online, conduct in-depth research on social media platforms like LinkedIn, Twitter; you can visit startup incubators, co-working spaces, and networking events; you can even ask your friends and family.
Startups of London published a comprehensive guide about the London Startup Ecosystem including a list of reliable and successful Mentors, Experts, Consultants and Advisors.
Create A Business Plan
Writing a business plan is one of the most crucial steps in starting your business. You should define each of your trading activities carefully. You might be in trouble if you sell services or goods that are not indicated in your business plan. Also, you have to set your goals straight. You can review and adjust your business plan each year but it’s good to have a realistic and solid start. You can view the British Business Bank’s business plan template and guide, also, read example business plans on the Internet.
Register Web Domains And Trademarks
Digital presence is one of the most important aspects of our time to build trust. You should think about your domain name when you are choosing the name of your business. You should consider matching names not to confuse your customers. You should consider registering your web domain even before you registering your trademarks.
Set Up A Business Bank Account
You might want to open a business bank account even if you’re a sole trader because of two main reasons. Your bank might tell you that they can close your account, especially if they see large amounts of business transactions going on. Also, having the same account as a business account and personal account might complicate things when it comes to taxation of your income.
Find The Ideal Insurance Company For Your Business
There are mainly two types of insurances for companies. One set of insurances are required by law. You should have:
- employers’ liability insurance if you employ people at your company
- commercial motor insurance if you have vehicles that are registered to your company
- professional indemnity insurance if you offer your knowledge, skills, or advice as part of your profession
The other set of insurances are optional. Those are:
- commercial property insurance to cover the expenses of repairing or rebuilding your business premises, or replacing your stock or equipment.
- liability insurance against compensation claims following fault or negligence brought against you or your business by clients, customers, shareholders, investors, or members of the public.
- cyber insurance to cover your losses relating to damage to, or loss of information from, IT systems and networks.
Here you can read more about getting business insurance in London.
Complete Your Registration For Taxes
Registering for tax is the last step to start a business but you will still have some work to do after you are officially ready to trade in the UK. You should either apply for a National Insurance number and/or register for Self Assessment.
Consider Hiring A Business Accountant
You should seriously consider hiring an accountant if you want to have a long-lasting business and strong finances that will help you grow. According to the same research published in The Telegraph states that almost two-thirds of small businesses hit with unexpected costs during their first year. Find someone you trust to keep your books straight.
Create Your Website
Creating a website is not as complicated and time-consuming as it was in the past. Approximately since WordPress introduced us website templates in 2003. You can always hire someone to set up a website for you but there are a lot of options that you don’t need any expertise in creating websites. You can use services like Wix, Squarespace, and Weebly as well as other tools.
Define Which Social Media Profiles You Need And Create Social Media Accounts
As we mentioned earlier in this article, digital presence is almost everything in today’s world. Having a website is not enough because your target customers should know about your brand. That’s why you should go where they are instead of sitting and waiting for them to find you. Analyse and find where your potential customers hang out. Set up social media profiles that can attract them and make them come to you.
Think About Your Employee Plans And Consider Where To Find The Right Employees For Your Business
Setting up social media accounts is not useful because you can find customers. You can find your future most valuable assets, who are your employers, online. You can look for professionals on LinkedIn and Twitter, too. It’s almost the same process as finding customers. Know where the quality professionals are for your business, and connect with them. You can also use more traditional methods such as print ads or contacting recruitment agencies.
Make Technology A Part Of Your Small Business Growth Plans
Almost every industry grows faster because of developing technologies. Don’t think you’re going to be different, even if you plan to operate a small grocery shop. You should keep an eye on technological developments whatever your profession is because there’s always something that will make your business more practical and help your business grow in a much efficient way.
Follow social media accounts of tech leaders, best professionals in your field of expertise, technology blogs, podcasts and publishers, as well as publications about your industry.
You can also join the SOL Online Entrepreneur Community and stay connected with the startup founders, entrepreneurs and business owners who exchange innovative ideas and share market opportunities in one platform.