You have an idea for a new business
Britain is a nation of fearless entrepreneurs, but the likes of Richard Branson and James Dyson didn’t go from rags to riches instantly. Branson needed a £300 loan to get his magazine up and running after dropping out of school at the age of 16, while Dyson produced 5,167 prototypes before inventing his vacuumless dust-buster.
Not all business ideas lead to great success either. Government statistics show that more than half of businesses which were founded in 2011 folded within five years.
If you have a bright idea and have spotted a gap in the market, you’ll need to test, prepare and assess the risks and opportunities to give your new business the best chance of survival.
Testing your idea
You wouldn’t be starting this journey unless you believe your idea is a winner, and testing your idea can save you time and money if things don’t turn out as planned.
Make sure you conduct market research before starting your business because this will enable you to gauge interest in your product or service as well as find out how much consumers may be willing to pay for it.
Living in an increasingly digital age means you can do a lot of this online. You could visit the websites of potential rivals, trade groups or industry publications for useful statistics.
It’s also a good idea to identify your ideal customers – those who may be interested in buying your product or service. Think about their needs and habits.
If you have the cash at this early stage, you could hire an objective market research expert who will give you an unbiased assessment based on established techniques in your industry.
Should I be a sole trader or a limited company?
In 2017, there were around 5.7 million private sector businesses registered in the UK. Sole traders accounted for around 60% of that figure, with the rest of those businesses being companies or general partnerships.
If you opt to become a sole trader, you will run your business as an individual and be entitled to keep all of the profits it makes. You will also carry the responsibility for any losses it makes however.
You must pay income tax and national insurance contributions (NICs) on any profits by completing an annual self-assessment tax return.
Can a sole trader employ people?
Despite the title, sole traders can employ people.
You may also need to register for VAT if your turnover is likely to exceed £85,000 a year in 2018/19.
General partnerships and limited liability partnerships define the partner’s liability for debts the business accrues. Profits are shared between partners who are responsible for paying tax on them in an agreed ratio.
Partners in a general partnership can be personally responsible for a partnership’s debts and are responsible for managing the business.
In both types of partnership, the individual partners are taxed in the same way as if they were sole traders. With a limited company, the finances are separate from your personal finances, so your personal assets will usually be protected if your business gets into trouble without breaking the law.
As a limited company director, you must register it with Companies House, provide statutory accounts, send Companies House a confirmation statement and complete a company tax return.
As a director or shareholder of the company, you will not be personally taxed on the profits of the company which you do not extract.
Much like a sole trader and a partnership, you will have to register for VAT if your annual turnover exceeds £85,000 in 2018/19.
Writing a business plan
Once you’ve conducted market research and selected a business structure to suit your needs, the next stage is to come up with a business plan.
What is a business plan?
A good business plan will help sell your idea to investors or banks, while also enabling you to think through every detail to plan for every eventuality.
Considerations include what your business will sell or supply, its structure, how your products will be sold and how much they will cost, short-term and long-term targets and timelines for meeting them.
Where possible, analyse your customers and competitors. Who are they? Where are they based? How does your product differ and appeal? How do you attract these customers? You should also factor in any financial forecasts – such as profit and loss, projected sales, cashflow – and any marketing or contingency plans.
What should I name my business?
With millions of companies registered, naming your business is not as simple as it sounds – your business’s name cannot be the same as another registered company’s name.
Come up with a shortlist of names and order them in terms of personal preference before checking that no other business is operating with the same name.
You can do this by checking the Companies House name register.
It’s also wise to check that a suitable web domain is available, so you can set up a website to act as a business card or an online sales portal for potential clients to buy your goods or services.
If you’re planning to market or sell products globally, it’s important to check that the chosen name for your business does not mean something different in another country.
You should also check that the name you have chosen is not trademarked, and does not resemble a trademark. There are also certain words or phrases you cannot use in company names.
For instance, those suggesting endorsement by the Government are banned, while others, such as ‘optician’ or ‘architect’, are restricted for use by people with the appropriate technical qualifications.
Managing your business
When starting a business, how you manage the first 100 days of your startup will go a long way to determine how successful a venture it ultimately is. Below are some areas to consider.
Have a medium-term goal and stick to it. These should support your long-term visions for running a successful business and usually last between three and five years.
Pay attention to customers early on. Using social media platforms is often a constructive way to do this, and should set the tone for how you handle all customer feedback.
How do I manage my cashflow?
Keep track of the exact amounts of money flowing in and out of your business. Keeping digital records is a useful way to do this, and will help you understand your business’s cashflow.
Forecasts play a vital role in managing your business, with sales forecasts and profit/loss forecasts covering most of your business’s income and day-to-day costs.
Late payments are the scourge of entrepreneurs. This has a significant impact on cashflow, but there are things you can do to encourage customers to pay on time.
Be upfront about your payment terms and conditions from the start, including your right to claim interest on invoices or issue charges in the events of late payments. You could even offer a discount for fast or early payments.
As well as ensuring you have the right money coming in, you’ll need to be aware of your spending. Look at where you’re spending the most money and how you might be able to make savings.
For example, assessing your stock can help you focus on how long it takes you to sell stock on average, and where the majority of your profit comes from.
What if I need to borrow money?
To find out more about business funding and how to apply to it, head over to our news story ‘85% of small businesses are successful in securing funding.’
Another area to think about is the tax your business is paying, and whether you’re taking advantage of any reliefs or allowances.
If you are eligible for these or other reliefs, our experts can apply them ahead of the tax year to make your business more tax-efficient.
To read news and blogs from Andy Penfold, click here >>