If you are a sole trader, you’ll need to register for self-assessment before October 5 in your second trading year. Once this has been completed you’ll need to fill in your tax return each year, which you can do on your own or be supported by an accountant. The deadline for the tax return is normally at the end of January. If you miss this deadline you may have to pay a fine. Once you’ve registered you’ll also get a Unique Taxpayer Reference (UTR), so keep this safe.
How to start a business
Starting a business: A complete guide
If you're a budding entrepreneur or have a business idea you're itching to bring to life, here's some information that would be useful. Or if you know what you're looking for, choose from the products below
Starting a business
If you are thinking about starting a business, then you’ve come to the right place. The hardest part of the journey you are about to embark on is always the beginning. This is because it can feel overwhelming to leap into the unknown.
However, the good news is that we have all the resources you need to get started.
So, if you aren’t sure how to create a business plan or don’t know what funding options are available for your business idea, stick with us and we’ll guide you through the process.
You can also take advantage of various business online tools, like this cash flow template, business plan template and invoicing template.
Learning how to start a business involves a lot of research, hard work and determination."
Identifying your business idea
First of all, you’ll need to make sure you have a suitable business idea. It’s important to understand that not every new business idea needs to reinvent the wheel, instead you might want to utilise your knowledge and skills for a business that fills a gap in the market.
The key is making sure that you have something that will make your business stand out, like a unique selling point.
Once you are confident in your idea, it’s time to start thinking about the logistics. For example, how will you get started, who is the target market and what startup costs will be involved?
On the latter point, many people underestimate how much money it costs to start a business, so be realistic with the costs involved.
Write down as much information as you can, and then float the idea with friends and family to get some initial feedback.
Encourage everyone to give constructive feedback and make notes with their main queries or concerns. This will help you to realise whether the business idea is feasible or not.
The next step is to research your competitors. This will help you to see what is and isn’t working for them and whether the market is oversaturated.
It’s also important to do a SWOT analysis - which stands for strengths, weaknesses, opportunities and threats. This system will help you to evaluate the business idea and whether it’s worth exploring further.
Creating a business plan
Now you’ve thoroughly researched your business idea, it’s time to get planning. Creating a business plan is essential to starting a business and must not be ignored - even though it can feel daunting at first.
Describe your business
The first step of your plan is to clearly articulate your business and write a mission statement.
Add your objectives
What do you want to achieve with your new business? Objectives are an important part of a successful business journey.
Create a strategy to success
Detail a step by step strategy of how you plan to achieve your objectives and what you need to do to ensure your business is successful. It’s also a good idea to include a marketing plan.
Don’t forget about the money
A business plan isn’t complete without a detailed look at the financial side of the business. Remember to include financial forecasts and if you’ll need any funding.
Market analysis
Market analysis is important when setting up your business as it helps to understand your target market so you can differentiate your business from competitors. It can also allow you to highlight trends and opportunities in your market.
Research is the key to market analysis and try not to rush this process, as it will play an important role in your business plan and ultimately in your business’ success. Use this analysis to also identify any gaps in your industry and look at whether there are any barriers which could cause problems in the early days of your business.
The percentage of businesses in the UK that are sole traders[1]
56%
The structure of your business
There are two main types of business structures; limited company or sole trader. If you are thinking about starting a small business then you’ll need to decide what it will look like.
Each business has different ways of dealing with tax and National Insurance, so have a chat with your accountant if you need further information.
Sole trader
A sole trader means that you run the company by yourself, and the tax thresholds work in a similar way to when you’ve been employed. You’ll also need to register as self-employed with HMRC, but won’t need to register with Companies House.
A sole trader is best if you don’t plan to hire anyone else, so works well for freelancers. However, bear in mind this means you are personally responsible for any debts from the business.
Limited company
If you have bigger plans for your business and hope to hire employees, then consider a limited company structure. This is when you create a legal entity for your business, which is separate from the people who own, run and work for it.
It will need to be registered with Companies House and the company will have one or more directors, who are legally responsible for running it. Company tax accounts will need to be completed each year and submitted to HMRC.
You can find out more about how to register a business by reading our in-depth guide.
Deciding how to structure your business is an important consideration."
Financial planning
Here are some key things to consider during the financial planning stage of setting up your business:
Strategy
How will you achieve the goals of your business? This is an opportunity to look at what you’ll need to do to be a success; from what equipment you’ll need to how many employees you will need to hire.
Projections
Once you’ve determined your goals, you can work out the costs involved. This is a good stage to involve an accountant for a second opinion.
Cash flow
You might end up with a situation where your business isn’t as profitable as you were expecting. Therefore, it’s important to plan for the unexpected and make sure you have some money available.
Goals
Once you have the above in place, you can start to monitor the business’ success against your strategy. See how your goals are performing in real-time and update the plan if you spot any opportunities or potential problems.
Registering your business
Sole trader
If you are a sole trader, you’ll need to register for self-assessment before October 5 in your second trading year. Once this has been completed you’ll need to fill in your tax return each year, which you can do on your own or be supported by an accountant. The deadline for the tax return is normally at the end of January. If you miss this deadline you may have to pay a fine. Once you’ve registered you’ll also get a Unique Taxpayer Reference (UTR), so keep this safe.
Limited company
To register your business as a limited company, you’ll have to register with Companies House and pay corporation tax. The business will need to have a unique name and have its own business address. You’ll then get a letter from HMRC that details any legal responsibilities and it’ll include a Unique Taxpayer Reference (UTR) for your company accounts.
Registering your business
Sole trader
Limited company
To register your business as a limited company, you’ll have to register with Companies House and pay corporation tax. The business will need to have a unique name and have its own business address. You’ll then get a letter from HMRC that details any legal responsibilities and it’ll include a Unique Taxpayer Reference (UTR) for your company accounts.
Legal requirements
If you are starting a business, it’s important to understand if there are any legal requirements. For example, some businesses may need a special licence to operate.
Do your research and utilise the government website for information to make sure you are compliant. An accountant can also help you with setting up your business and offer information on tax and business expenses.
You might also need business insurance to protect you if something goes wrong and it’s a legal requirement to have a company person if you are employing staff.
Some businesses may need a special licence to operate."
Funding your business
Once you've identified your business idea, created a solid business plan, and considered your market, it's time to delve into one of the most crucial aspects of entrepreneurship - funding.
You can't act on your idea and follow the business plan, unless you have the capital to finance it and turn your dream into a reality. It is possible to do it with no money, but funding will set you up for success.
Why would you need to get funding?
Before we explore the various funding options available to you, it's essential to understand why securing funding can be a game-changer for your new business. Here are some compelling reasons to consider:
Accelerated growth
Funding allows you to scale your business more quickly, taking advantage of growth opportunities as they arise. With sufficient resources, you can expand your operations, reach more customers, and capture a larger share of the market.
Investment in infrastructure
You can invest in the necessary infrastructure, equipment, and technology to ensure your business runs smoothly and efficiently from day one.
Talent acquisition
Securing the finances enables you to attract top talent by offering competitive salaries and benefits. Hiring skilled professionals is vital to ensure your business's success.
Marketing and promotion
Adequate funding ensures you have the budget for effective marketing and promotion. You can create brand awareness, attract customers, and generate sales more effectively with a well-financed marketing strategy.
Resilience
Having access to capital also provides a safety net for unexpected challenges or downturns in the market. It allows you to weather financial storms and keep your business afloat during tough times, without having to resort to redundancies or closing down shops, or departments.
Remember that each business is unique, and the funding strategy that works best for you may differ from others. The key is to make informed decisions that align with your vision.
Types of funding you could access
Personal savings
Using your personal savings to kickstart your business is often a smart financial move. The interest you might lose from withdrawing your savings is typically far less than the interest and fees associated with taking out a loan.
Another viable approach, especially if your business idea has organically grown from a hobby, is to maintain your regular job and self-fund your venture from your salary.
The big advantage is that it gives you complete control over your business finances, minimising the risk of accumulating debt. However, the downside is that there's a chance you could deplete your personal savings, which might leave you financially vulnerable if your business encounters difficulties.
Family and friends
You can consider borrowing from or receiving investments from family members or close friends who believe in your business idea. This is can be risky and damage your relationships if the venture goes sour.
Be sure you have clear agreements in place to avoid misunderstandings and that they're aware that they could lose all the money they invest.
Government grants & loans
In the UK, government schemes and loans play a pivotal role in nurturing entrepreneurship.
Around 70 different government grants cater to diverse sectors, encouraging innovation and growth. These grants often come with stringent eligibility criteria, focusing on specific areas like technology, research, or regional development.
The Seed Enterprise Investment Scheme promotes investment in startups. Accessing these resources demands a thorough understanding of the application process and a solid business case.
Business loans
Traditional business loans, or startup loans, are a foundational financing option. Banks and online lenders offer these loans, providing a lump sum of capital for various business needs.
Typically, you'll repay the loan over a set period with added interest. These loans are versatile and can be used for anything from expanding your operations to purchasing equipment.
They suit established businesses with a track record and strong creditworthiness. However, they often require collateral and a comprehensive loan business plan.
Crowdfunding
Crowdfunding leverages online platforms — such as GoFundMe and Kickstarter — to source capital from a broad audience. This method engages a "crowd" of backers who believe in your business concept.
Beyond funding, crowdfunding acts as a marketing tool, creating a community of early supporters. It's suitable for businesses with compelling stories and products that resonate with the public. Successful campaigns require effective marketing, clear rewards, and transparent communication.
Venture capital
Venture capital firms specialise in funding startups with explosive growth potential. They invest substantial sums in exchange for equity and often have a longer investment horizon. Their interest lies in innovative ideas and scalability.
Venture capitalists bring strategic guidance and industry contacts, but they also exert influence on company decisions. Startups seeking venture capital should prepare for a rigorous due diligence process.
Angel investors
Angel investors are high-net-worth individuals who invest their personal capital in startups or small businesses. Beyond financing, they provide valuable expertise, mentorship, and industry connections.
Angel investors are attracted to promising ventures and are willing to take calculated risks in exchange for equity. Building a strong rapport with potential angels is crucial, as their involvement extends beyond just funding.
Peer-to-peer lending
P2P lending platforms connect borrowers with individual lenders who offer loans at competitive interest rates. This alternative to traditional bank loans bypasses traditional financial institutions.
The type of borrowing is suitable for businesses with moderate financing needs and those seeking faster approval processes. However, borrowers should be prepared for credit checks and interest rates that vary based on their creditworthiness.
Business incubators
Joining a business incubator or accelerator program provides not only funding but also invaluable resources. These programs offer mentorship, workspace, networking opportunities, and educational resources.
They are ideal for early-stage startups looking to refine their business model and gain access to experienced advisors. Incubators usually offer longer-term support, while accelerators have a shorter, more intensive focus on scaling up. Participation often requires giving up equity or agreeing to specific terms.
Types of funding you could access
Personal savings
Using your personal savings to kickstart your business is often a smart financial move. The interest you might lose from withdrawing your savings is typically far less than the interest and fees associated with taking out a loan.
Another viable approach, especially if your business idea has organically grown from a hobby, is to maintain your regular job and self-fund your venture from your salary.
The big advantage is that it gives you complete control over your business finances, minimising the risk of accumulating debt. However, the downside is that there's a chance you could deplete your personal savings, which might leave you financially vulnerable if your business encounters difficulties.
Family and friends
You can consider borrowing from or receiving investments from family members or close friends who believe in your business idea. This is can be risky and damage your relationships if the venture goes sour.
Be sure you have clear agreements in place to avoid misunderstandings and that they're aware that they could lose all the money they invest.
Government grants & loans
In the UK, government schemes and loans play a pivotal role in nurturing entrepreneurship.
Around 70 different government grants cater to diverse sectors, encouraging innovation and growth. These grants often come with stringent eligibility criteria, focusing on specific areas like technology, research, or regional development.
The Seed Enterprise Investment Scheme promotes investment in startups. Accessing these resources demands a thorough understanding of the application process and a solid business case.
Business loans
Traditional business loans, or startup loans, are a foundational financing option. Banks and online lenders offer these loans, providing a lump sum of capital for various business needs.
Typically, you'll repay the loan over a set period with added interest. These loans are versatile and can be used for anything from expanding your operations to purchasing equipment.
They suit established businesses with a track record and strong creditworthiness. However, they often require collateral and a comprehensive loan business plan.
Crowdfunding
Crowdfunding leverages online platforms — such as GoFundMe and Kickstarter — to source capital from a broad audience. This method engages a "crowd" of backers who believe in your business concept.
Beyond funding, crowdfunding acts as a marketing tool, creating a community of early supporters. It's suitable for businesses with compelling stories and products that resonate with the public. Successful campaigns require effective marketing, clear rewards, and transparent communication.
Venture capital
Venture capital firms specialise in funding startups with explosive growth potential. They invest substantial sums in exchange for equity and often have a longer investment horizon. Their interest lies in innovative ideas and scalability.
Venture capitalists bring strategic guidance and industry contacts, but they also exert influence on company decisions. Startups seeking venture capital should prepare for a rigorous due diligence process.
Angel investors
Angel investors are high-net-worth individuals who invest their personal capital in startups or small businesses. Beyond financing, they provide valuable expertise, mentorship, and industry connections.
Angel investors are attracted to promising ventures and are willing to take calculated risks in exchange for equity. Building a strong rapport with potential angels is crucial, as their involvement extends beyond just funding.
Peer-to-peer lending
P2P lending platforms connect borrowers with individual lenders who offer loans at competitive interest rates. This alternative to traditional bank loans bypasses traditional financial institutions.
The type of borrowing is suitable for businesses with moderate financing needs and those seeking faster approval processes. However, borrowers should be prepared for credit checks and interest rates that vary based on their creditworthiness.
Business incubators
Joining a business incubator or accelerator program provides not only funding but also invaluable resources. These programs offer mentorship, workspace, networking opportunities, and educational resources.
They are ideal for early-stage startups looking to refine their business model and gain access to experienced advisors. Incubators usually offer longer-term support, while accelerators have a shorter, more intensive focus on scaling up. Participation often requires giving up equity or agreeing to specific terms.
How to compare funding options
Choosing the right funding option for your new business requires careful consideration. Here are some steps you can take make an informed decision:
Assess your needs
Begin by evaluating your business's specific financial requirements. Consider how much capital you need to launch and sustain your operations. Create a detailed budget that includes startup costs, operating expenses, and potential growth needs.
Understand the terms
Each funding option comes with its terms and conditions. Whether it's interest rates on loans, equity ownership for investors, or repayment schedules, make sure you fully understand the implications of each option
Evaluate your business stage
The stage of your business can influence which funding sources are most suitable. Early-stage startups may find angel investors or crowdfunding more appealing, while established businesses might opt for business loans.
Consider your industry
Some industries have specific funding opportunities or restrictions. For example, technology startups often seek venture capital, while environmentally-focused businesses may explore government grants.
Risk tolerance
Consider your personal risk tolerance. Are you comfortable giving up equity in your business, or do you prefer taking on debt that you'll need to repay? Your risk tolerance can guide your funding choices.
Seek expert advice
It's advisable to consult with financial advisors or business mentors who can provide guidance tailored to your specific situation. They can help you navigate the complexities of each funding option.
Diversify your funding
To mitigate risk, consider diversifying your funding sources. Relying solely on one source can be risky, so exploring a combination of options might be the best approach.
Business banking: Managing your money
It’s perfectly possible, and legal, to just use your normal current account as your business account. In fact, if you’re just starting out as a sole trader that might be the best solution for you.
But if you’re running a limited company or partnership, or have a more complicated business, there are some serious advantages to opening a business bank account.
Firstly, using a separate account for your business transactions helps keep your personal and business finances separate, which simplifies accounting and tax reporting.
Secondly - as accounts designed for businesses - they come with a string of add ons, tools and more. Everything from instant invoice generation, integration with accounting software to make doing your taxes easier, expense tracking and free payment services (including card readers in some cases) to make getting paid easier.
Several of these do come with a monthly fee, so make sure you’re getting good value from it through the additional services offered, but will also offer a “free trial” of a year or more at the start.
You’ll need a registered business number to open them in many cases, so it’s not something that’s easy to do ahead of time, but once you have that it takes just a few minutes to sign up.
As well as a bank account, it makes sense to open a business savings account too - if nothing else it's a good place to drop the money you'll need to pay in tax at the end of the year, so you don't accidentally spend it.
You don't have to open a business bank account, but the right one can make your life an awful lot easier.
Payment solutions: How to get paid
The one thing every single business needs to work is income. But how you get the money rolling in changes depending on whether you're selling your goods and services to the public or another business.
Taking payments from the public
If you’re taking money directly from the public, especially in a retail setting, that means you’ll need a way for them to pay you - especially given a lot of people no longer carry cash on them.
The good news is that it’s no longer difficult to pick up a card payment terminal with a pretty small up-front cost.
Think of payment terminals as a bit like mobile phones. You can either have a pay-as-you-go model - where you pay up front for the handset and then have a small amount of each transaction deducted - or sign up to a monthly contract where you pay each month, get the handset included, and save money on transaction fees.
If you’re feeling fancy you can get your whole payment system in one go - offering a till, receipt printing and more - although this will cost more.
Which sort of terminal is right for you depends on the sort of business you’re running and how much you’re likely to sell in a year.
If you’re online, you need a payment gateway - something that lets your website accept credit and debit cards and then directs that cash to your bank account.
The good news is that if you’re selling online and in person, many card machine providers also have an online element - meaning one company can do both.
If you’re online-only, you can sign up to one of a number of providers. Some of the top payment gateways in the UK are PayPal, Worldpay, Shopify, Stripe and Amazon Pay.
Taking payments from other companies
If you’re a small business, getting paid by another company or client by card (or in cash) can be a problem. That’s where invoicing comes in.
An invoice is, in effect, you sending a bill to someone for work you’ve done. But they serve several other useful purposes too.
Firstly, invoices help you to keep track of your payments and the amount owed, which then helps you when you come to file your tax return.There’s a legal benefit too – if a company or client doesn’t pay you, your initial invoice can act as legal proof an agreed service was carried out, which you may need if you take further action.
There’s also help available in making them - if your business regularly sends large numbers of invoices, consider using invoicing software such as that from QuickBooks and Zoho to save time and create batch invoices.
We’ve got a full guide to writing, and chasing, invoices here.
Business insurance: Protecting your business
Business insurance steps in to protect you from financial loss if something goes wrong at your company.
This could be anything from stock being stolen to a customer taking legal action against you because a sign fell on them.
It’s generally only a legal requirement if you’re employing staff - but while you won’t be breaking the law if you don't take any out, you could be missing out on a lot of opportunities as well as putting yourself at risk by not having any.
That’s because it’s rather common for companies to require you to have insurance in place before they let you work with them.
It’s also a requirement to have insurance to join certain trade associations, meaning you could also lose out on work by being excluded from them too.
There are two main ways to buy insurance for your business. You can either buy a package designed to cover what you do - for example builder’s insurance or dog walking insurance - or you pick specific policies yourself to cover what you think you’ll need.
Common types of business insurance
Public liability insurance
This covers damage caused by your business to a third party or their property. A third party is typically anyone not employed by your business.
Professional indemnity insurance
This covers claims made due to failings in the products or services provided by you or your company.
Employers' liability insurance
Employers' liability insurance provides cover to UK employers against legal liabilities and costs if staff become ill or injured due to their work. It's a legal requirement if you employ anyone that's not a close family member.
Goods in transit insurance
This protects you if someone claims against your business if goods are damaged, stolen or lost while being transported.
Common types of business insurance
Public liability insurance
This covers damage caused by your business to a third party or their property. A third party is typically anyone not employed by your business.
Professional indemnity insurance
This covers claims made due to failings in the products or services provided by you or your company.
Employers' liability insurance
Employers' liability insurance provides cover to UK employers against legal liabilities and costs if staff become ill or injured due to their work. It's a legal requirement if you employ anyone that's not a close family member.
Goods in transit insurance
This protects you if someone claims against your business if goods are damaged, stolen or lost while being transported.
How can you increase your business’s efficiency?
Every pound you spend on business operations is one less in profit - as such it makes sense to make your money work as hard as it can for you.
The first thing you need to remember when starting out is not to go bigger than you need to.
If there are only two people in the firm, you only need space for two people, for example, and a smaller space means savings on bills as well as rent.
Speaking of bills, it makes sense to make sure you're on the cheapest business energy deal you can find for gas and electricity - so make sure you compare prices before signing up.
Check to see if there are any other costs you can cut without losing out.
You might be able to find a cheaper business loan to switch to, or get cashback on your spending with a business credit card.
It's also worth making the most of any freebies on offer from a business bank account - you could get complimentary access to everything from accounting software to payment terminals.
Finally, get to know your business credit report - boosting your score here could see you save on loans and win more contracts in the future.
Tools or software your business might need
Here are some of the more common tools and software that could help make your business run more smoothly:
Basic Accounting Software
Software such as QuickBooks or Sage for managing basic financial transactions.
Calendar software
Microsoft Outlook Calendar or Google Calendar for scheduling and managing appointments.
Text messaging and collaboration apps
Slack, Microsoft Teams or Zoom, for internal collaboration and remote conferencing.
Project management tools
Platforms like Asana, Jira or Trello, for organising projects and tasks.
Cloud Storage
Services like Google Drive or Dropbox for secure storage and file sharing.
VPN Services
Maintain online security and privacy for your customers with VPNs like NordVPN or ExpressVPN.
Building your business network
One of the best ways to avoid mistakes when you're starting out is to speak to people who've been there and done it already.
More than that, building a network or finding a mentor can also help when finding clients or customers, getting deals with suppliers and much more.
Two places to start looking for like minded business owners are your local Chamber of Commerce and the Federation of Small Businesses, which hosts regular virtual networking events.
It's also worth taking to social media - and looking for relevant groups to join on Facebook or people in similar businesses you could message on LinkedIn.
If you're looking for clients or partners from other businesses, Business Networking International has plenty of UK groups. Only one person from each trade is allowed in each group, so there's a great opportunity to learn about other firms you might want to do business with.
And - finally - remember to ask friends and family. Even if they can't help directly, there is a strong chance they might know someone who can.
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References
1. Money.co.uk business statistics report: More than half (56%) of the businesses in the UK are sole proprietorships.