How Do I Start My Own Business
Starting a Business
Reason's why people start their own business.
There are numerous reason's why people start their own business, someone feels they can do the job better than their employer, the desire to work for oneself, being made redundant and not being able to find work, and then there is the entrepreneur who sees an opportunity no one else has spotted.
It doesn't matter how you came to the conclusion you need to start your own business, but it is always helpful to have some guidance to reduce the amount of time you may waste starting out in unknown territory.
Areas this article covers:
- Research your market - identify potential customers, know who your competition will be. Understand how big the market place is.
- Develop and plan - test your product or service with real customers, make changes, and test it again.
- Find suppliers - think about who you're going to work with to develop and sell your idea.
- Set up your business - your legal structure, and registering for tax.
- Get funding - explore different sources of business finance, from bank of mum and dad to government-backed schemes and all that goes in between.
How to start a business
Start with an idea
Firstly you will have to come up with a realistic idea you can turn into a product or service.
Protect your intellectual property
If you already have a great idea or have invented something you think people will want to buy, follow the link below to find out how to protect your intellectual property. This can stop people copying your idea without your permission.
1. Research your market
Firstly you need to find out if anyone else is selling your product or service. If you have access to the internet, this research is going to be a little easier than if you don't. Do a search in Google for the product or service you plan to provide to find businesses local and nationally. Check a couple of the websites to make sure they match your industry.
Once you have identified your competition you need to know if they are your competition in the real world (bricks and mortar) and online (search results, social media & networking sites).
Sign up for a Google Adwords account and use their keyword tool, this will show you how many people are searching for your product/service each month, this can give you an idea of demand for your business type.
If all the data is telling you there are far more businesses supplying the service/product then there are people looking for that service then you either need to change your plan, or work out what the existing companies are not offering that you can (this is called your unique selling proposition).
If you don't have access to the internet, you can always visit the larger libraries, such as those in London, Chelmsford in Essex and Cambridge. They all have dedicated sections for business and market research.
If you don't have time to do your own research, you can approach a market research company who may have already conducted research about your market and will sell you their report at a reduced rate. If they don't already have a report, they will undertake one for you but it will likely cost tens of thousands to produce.
Once you have done your research and know there is a space for your product, now is the time to get a prototype made, you will need to find the cheapest way of making your prototype which you will test on your potential customers.
If you are providing a service, put plans in place about your internal processes and test them on potential customers.
Product/service testing will allow you to get valuable fed back from potential customers. This enables you to make changes to your prototype before you commit to having the real thing made, it also enables you to tweak your services. It should also highlight any of your weaknesses, where you may have to consider partnering with someone else to make up for a lack of knowledge.
This kind of testing will confirm if there is a real demand for what you are selling.
The more people you can test your service/product on the better the information you will have. Testing a new biscuit on 5 people, 1 of which doesn't like it, does not mean you have a success on your hands.
2. Develop and Plan
You should now have enough feed back from potential customers to make the necessary changes to your product or service before you invest financially. Now is the time to deal with any problems you have highlighted.
Go back to your test group of people to find out if there are any further problems. Keep doing this until you are confident your test group would be happy to buy your product/service.
If there doesn't appear to be a demand for your idea, do not continue to invest time and money in it, but move on to something else.
The majority of small business owners are rarely selling their original idea, so don't feel you have failed. Running a business is all about ideas and developing your products and skills and making mistakes that you learn from.
Write a business plan
If you are going to approach a bank for a start up loan, you will have no choice but to produce a business plan.
Whether you need a bank loan or not, a business plan will aid you in understanding where you are now, where you want to be and how you are going to get there.
A business plan is a good way to sum up:
- customer need
- how you will meet that need
- how you will make a profit
The plan should show the results of your customer research, market space, and how you can turn your idea into a viable business.
3. Find partners, suppliers and premises
If you are the only person in your business you would normally start out as a sole trader who will be self-employed.
What that means to you:-
- managing your own time
- finding enough clients
- looking after all of your company's admin and accounts
- taking risks with your own money
Whether you set up as a sole trader, partnership or limited company, your business is likely to involve working with more people to develop and sell your idea - including partners, suppliers and distributors.
Partnerships are formed where two people have the skills needed to provide a product or service to the intended client. Without one of the partners the business would not exist or could not grow.
For example, you might be really good at coming up with product ideas and getting that product made. But you may be hopeless at sales. Forming a partnership with someone who loves your product and is able to sell it would be very beneficial to the growth of your business.
Having partners means you will be able to share responsibilities including risk, getting funding, expertise and sharing contacts.
However, now-a-days many companies work in collaboration with others, helping micro businesses to tap into the right skill sets but without having a partnership or taking on employees.
Often sales and marketing companies will collaborate with other marketing companies who specialise in different areas. A company producing websites may collaborate with someone who is an expert at technical SEO. Then they may use a social media expert to spread the word about you.
Collaborating with other businesses means you have full control of the project, but you own all the responsibilities as well, including chasing for payments, then passing that payment onto the collaborating partner.
All businesses need suppliers, from office stationery and computers through to raw materials for product production and machinery.
You can search online, attend trade shows, do networking events and talk to other businesses about the best suppliers available.
Draw up a list of potential suppliers, get estimates, then go and talk to them as you will find it easier to:
- negotiate prices
- start to develop relationships
- get a sense of which suppliers are reliable and trustworthy and who you're going to get on with
Then comes the signed agreements concerning credit and payment terms which you need to have in writing. These agreements cover how many days you'll have to pay, how much money you can owe the supplier at any given time and whether you can have discounts if you buy in bulk, pay with cash or can pay quickly.
Getting your product to market
If you're planning to sell your product in shops and expand outside of your local area, you'll need to work with a distributor. If you're selling overseas, consider working with a freight forwarder who can deal with exporting your goods.
Build a website
You can also attract customers and increase awareness by setting up a website for your business. Search online for resources, as well as local web design and development companies you can work with.
You can also sell your product or service directly through your website.
Remember a locally based website developer is better for your business, they can pop in and chat with you about your plans and how the website can develop over time.
There are of course free and cheaper options where you are left to do it all yourself, but these website producers are often owned by businesses who are based abroad and have the ability to keep prices cheaper than a British based company.
Once you are big enough and earning enough money to invest in marketing your business you should always use a professional website designer and developer to produce a bespoke website.
You are judged on all your marketing and sales efforts, get this wrong and your business will suffer. Buy cheap buy twice!
There are so many options available to start ups when compared to 10 to 15 years ago. Here are some ideas with a few helpful links:
- The home office - the cheapest way to get started. Use a spare room, shed or garage. If you want your home address private, pay for a virtual office address.
- Hot desk - rent a desk in a shared office space. You get the professional feel of an office, and have people to chat to. You will also be able to hire a meeting room if you need to see clients.
- Managed premises - you'll be renting your own private office space in a large building full of small businesses. The monthly fees usually include rent, water & heating costs.
- Commercial office space - you can rent or buy your own commercial building to operate from.
4. Set up your business
Most people just start selling then worry about the legal stuff later. However, at some point you will need professional advice.
Your local job centre can help you attend a course about setting up your own business, banks offer advice to start ups, as do Accountants and Solicitors, the latter two will tell you exactly what needs to be done and they can do it for you.
Firstly you'll need to decide which legal structure is right for your business before you register with HMRC to pay tax and national insurance.
It's important you understand the different risks and benefits before you choose which legal set up is right for you. This is where a good Accountant comes in handy. Whether you choose to set up as a sole trader, limited company or partnership affects:
- the amount of financial risk you are responsible for
- the way you'll need to pay tax, and report to HM Revenue & Customs (HMRC), and Companies House for limited companies and some types of partnership
- how much control you have over how your business is run
If you are going to need help to realise your dream, you might have decided to take on employees. Before you employ anyone you need to find out about your legal responsibilities. You're going to need to know about pay, tax and insurances and how to manage staff.
You will also need to register as an employer with HMRC.
You may still need insurance even if you are not employing people.
If you choose to work from home and expect clients to visit you, speak to your home insurance company who may be able to offer you a solution with your home insurance.
If you are visiting clients premises, then their insurance should cover you while you are there. But if whatever you are doing could affect that businesses ability to operate or make money you will need indemnity insurance.
Find an authorised insurer on the British Insurance Brokers' Association (BIBA) website: http://www.biba.org.uk/
You may also need to sort out certain licences, permits or qualifications depending on the type of activities your business is going to be involved in.
Working with advisers
Ask for an estimate from any adviser and an agreement of what they are going to do.
Some charge by the hour, others may offer a fixed fee for a piece of work. Get a couple of quotes and make sure you can work with your adviser before you agree to anything.
Book keepers can complete all your accounting needs, other than finalising limited company accounts. They are cheaper than Chartered Accountants, but the Chartered Accountant can give you great advice, help you plan for the future and finalise all business types of accounts. They often give great advice about tax and how to save money. Both will deal with HMRC on your behalf.
Accountants can be found at every networking event in your area, in Yellow Pages and Thompson Local, as well as the internet and on the high street.
Get legal advice when you set up your business, they will give you all the information you need from selling your product through to selling shares in your business.
5. Get funding
Keep Current Job
Whether it's household bills, or buying things for your start up, you will need some type of funding. For many, staying with their current employer while they get started is their only option, then moving to part time work or temping until enough cash is being made via the new company.
Then there is redundancy payments. Just work out how long your redundancy money will last and whether that gives you enough time to get up and running.
Bank of Mum & Dad
Your parents may be willing to invest in you. But be honest with them so they understand the risk they are taking and that they may never get their money back. If they don't get their money back will they be able to retire when they wanted or have the lifestyle they planned?
You might be able to get help from a government-backed support scheme if you need some initial funding to test and develop your idea.
Visit the government portal to find out more.
Get a bank loan
Nearly all banks have some type of start up loan.
You'll need to be able to:
- give the bank realistic cash flow forecasts
- prove that you'll be able to pay back the loan with interest
The bank may want you to provide security against your loan, such as a house or car, in case you can't repay the loan.
Selling shares in your business venture
If you need a lot of investment, you may be able to raise money by selling shares in your business. Anyone can buy shares in your business venture including family and friends. Here's a few others:
- Business angels - wealthy individuals who invest in start-up businesses
- Venture capital - from companies who invest large sums of money in businesses that they think will grow quickly
- Crowd Funding - where a large group of people invest money in a business idea, usually via the internet; this method is becoming increasing popular.
Outside investors will own a part of your company, they have a say in the running of the company, and are entitled to get a share of the profits, known as dividends.
Crowd funding is becoming popular because there are more options other than just giving shares to investors. This is a good alternative for many start ups, as you don't have to offer shares, but maybe a unique product, or the first to receive the product once it goes on sale.
Always seek legal advice before you sell shares in your business.