In a recent Guardian article, successful entrepreneurs discussed the future of small businesses. They confirmed that uncertainty caused by the pandemic had negatively impacted the industry. However, most small businesses performed better than expected. And fortunately, this trend looks set to continue.
Modern tech has given SMBs the boost they need to drive their business. The rise in remote working, e-commerce platforms and electronic banking has meant that it’s never been easier – or cheaper- to start a small business. In fact, it’s now approximately 1000% more cost-effective to open a business today than it was 15 year ago.
Those are pretty decent odds.
It’s not just technology that’s working in the favour of small businesses. According to Pitchbook, Venture capital deal value in 2020 beat 2019’s record by December, reaching $43.8bn (£32.6bn) in Europe alone.
This was a significant leap from the previous year’s high of $41.6bn – and it bodes well for small businesses.
Having said that, success relies on more than just ideal conditions (although they definitely help). It requires drive, dedication and – above all – a clear plan.
This guide to starting a small business in the UK will help you tick off all the right boxes – and help you make the most of every opportunity!
1. DEVELOP YOUR IDEA
Great businesses always come from great ideas. But, just like a business needs structure to grow, ideas need focus.
When it comes to defining your service or product, here are some key pointers:
What need are you meeting?
Most ‘lightbulb’ moments come as a result of encountering a problem that needs fixing. You might be taking inspiration from personal experience, or filling a void you’ve noticed somewhere else.
Whatever it is you’re offering, be clear on exactly what it’s doing for your customers.
- Is it fulfilling a requirement, or is it satisfying a desire?
- How am I unique from my competitors?
- Why should/would people pay for this?
These might seem like obvious questions. However, it’s important that you’re able to answer them concisely. After all, if you’re not 100 percent convinced your product or service meets a need, how are you going to convince your customers – or, eventually, investors?
Your idea needs to fill the vacuum it’s created for in a unique, intuitive way. Otherwise, there’s nothing to differentiate you from your competitors.
What’s your target market?
You’ve probably heard of Buyer Personas. If not, our mutual friend Wikipedia has a handy definition:
“A fictional character created to represent a user type that might use a site, brand, or product in a similar way. Marketers may use personas together with market segmentation, where the qualitative personas are constructed to be representative of specific segments”
In layman’s terms: it’s your ideal customer, personified.
Take a look at your competitors and ask yourself:
- Who buys their product or service?
- How do they sell it to them?
- Where do they sell it to them?
Then take a look at their client base. Ask yourself questions like:
- What are their pain points?
- What do they value most about the product or service?
- What do they seem to complain about?
Some businesses dig very deep with this, matching their personas to hobbies, entertainment genres and clothing. However, unless your product or service involves these particular things, they aren’t necessarily relevant. Focus on understanding what the client needs from you, then model your business accordingly.
What’s your brand identity?
As Jeff Bezos so adequately quipped, “Branding is what people say about you when you’re not in the room.”
Your brand identity is essentially your promise to your customers, and your business’ ‘personality’. It’s a combination of several things. The most important features are:
- Your logo, website and colours
- Your tagline or slogan
- Your brand values, mission and vision
TOP TIP: Think of it as a trio of ‘C’s. An attractive logo, sleek website and eye-catching design inspires Confidence. A quick, clean soundbite that sums up your vision and mission inspires Curiosity. And a passionate statement about what matters to you (on both a business and humanitarian level) will inspire Commitment.
2. WRITE YOUR BUSINESS PLAN
This means putting your business objectives, strategies, sales, marketing and financial forecasts down on paper.
Writing a business plan is an excellent way to:
- Determine your goals
- Track progress and growth
- Identify potential setbacks
- Establish a clear business idea
Business plans are also essential for landing investors, or taking out a bank loan.
Having a business plan provides clarity for you, your customers, suppliers and future employees. It’s a single sheet that everyone can sing to, and ensures that everybody in your business is on the same page.
How To Make a Business Plan
Setting out your business plan isn’t as complicated as it sounds. It’s just a matter of putting all your previous research down on paper. Here’s an example of what you’ll want to touch on:
- What problem are you solving?
- How are you solving it?
- What’s your market?
- Who are your competitors?
- Why are you different/better?
You’ll also need to crunch the numbers. Discuss your expectations of the business by addressing:
- Your financial forecasting
- Yearly financial highlights
- How much financing you need to operate
You should also think about your market strategy, your long and short term goals, and how you’ll track and measure progress. Don’t forget to formulate a solid exit strategy as well!
TOP TIP: Financial forecasting is essential for budgeting success. Read more about how forecasting can help with cash flow projections by checking out our expert roundup on this topic.
3. DEVELOP A MARKETING STRATEGY
An informed, achievable marketing strategy is a love letter to your business goals. Understanding your customer, analysing your competitors and beating both to the punch with intuition is the key to success.
One of the simplest formulas for success is the 7 ‘P’s of Marketing. Coined by sales buff E. Jerome McCarthy as the ‘4 P’s’ before being upped to 7, this tried-and-proven model has been around since 1960.
Here’s an overview of the 7 ‘P’s:
Product or Service
Whether you’re offering a product or a service, you need to meet – or better yet, exceed – your customer’s expectations. You may also want to think about potential flaws, and plan for repair and replacement services.
A great product or service is at the core of your business – so make the time to get it right!
Think about where you want to sell your product. Do you want (or need) brick-and-mortar premises? An office? What about a warehouse for your goods? Will you sell exclusively online? What e-commerce platform will you use, and will customers be able to purchase your products on your website or will that be purely for information purposes?
Think about your target client. What would give you maximum visibility for them – or present the least amount of hurdles to reach them?
Again, competitor analysis is key here. Check out your competitors services or products and use it as a benchmark. If you’re going higher, what are you offering that they aren’t? If you’re going lower, are you still covering overheads and turning a profit that’s consistent with your budget?
Make sure to offer several different pricing options so you can reach a wider audience.
Think about your buyer persona. Where would they be most likely to see your ad? There are more traditional methods, such as TV, radio, billboards and print. Then there’s digital channels like online ads, social media and Youtube.
Choose the top main channels where your buyers interact, and focus on delivering quality lead generation campaigns there.
Whether you’re offering a tangible or intangible service, there needs to be proof that it exists. Receipts, packaging, tracking information, invoices, brochures – all of this counts. Validation is another important thought point. This is things like your website, logo, business cards, brand headquarters and social media presence. The more evidence your customer can find to validate your existence, the more credible you will appear.
Whether it’s direct employees, contracted freelancers, providers or distributors, chances are you’re going to need a team. Try and work with others who share your values and vision for the business. This isn’t only essential to creating a good company culture and driving success. Investors are more likely to fund an idea if there is an amazing team to back it up.
Determine a step-by-step guide for each aspect of running your business. This applies to sales funnels, payments, distribution procedures and managing clients. Streamlining – or even outsourcing – each of these processes helps prevent mistakes and boosts productivity. Automation is a great way to manage simple, repetitive tasks. And of course, apps are an entrepreneur’s best friend (check out this great list of tools from Style Factory)!
TOP TIP: One of the most cost-effective ways to streamline processes is to outsource them.
Julia Clark, engagement director at the Encephalitis Society, noticed that managing their admin internally was pulling focus from their research. As a charity, keeping running costs lean so they could devote the bulk of resources to their mission was essential.
Clark hired Pink Spaghetti Wirral to provide administrative support to their Chief Executive. “Since then,” Clark told Addition, “we have seen a 50% increase in demand for our support services which has naturally had a knock-on effect on our work and finances.”
4. SET MEASURABLE GROWTH GOALS
This isn’t just direct sales. When it comes to setting goals, you can cast an even wider net.
Adopt a big-picture mindset. Think about improving your sales funnel, your actual service, your social media reach, or your website’s SEO ranking. All of these things contribute to the ultimate goal of generating a steady cash flow.
- Start by deciding what business goals you actually want to accomplish
- Be as specific as you can
- Commit to your goals by putting them in writing and making yourself accountable to others
- Set deadlines and do your best to meet them
- Reward yourself and your team when you do!
When setting goals, it’s important to be as realistic as possible. There’s nothing wrong with aiming high. However, there’s also nothing more demoralising than setting unreachable targets.
TOP TIP: If you have a team, get them involved in the goal-setting process. They’ll be much more supportive of hitting targets that they feel are achievable – especially if they’ve set these goals themselves.
5. FUND YOUR BUSINESS
A common mistake among entrepreneurs is overspending in the early stages of their business. Money’s always tight at first. It can be tempting to blow your budget on expensive equipment, office space/furniture, and unnecessary branded merchandise.
Before you start making purchases, take stock of your predicted monthly outgoings.
- Production costs
- License fees
- Utility bills
- Service Provider bills
- Employee wages (paying yourself a wage has many advantages, whether you’re a sole trader or a limited company)
You should also:
- Perform a break-even analysis (how much do you need to keep your business in the black?)
- Determine your average monthly profits (forecast this based on past sales if you can)
- Find ways to reduce regular costs (such as bulk buying stock or negotiating contracts)
- Examine external funding sources (look into business loans, grants and government bursaries)
Determining these factors will help you decide when and how to spend your money. It will also inform your sales targets, and indicate whether you might want to seek external funding. It’s your call!
TOP TIP: Many of your outgoings can be claimed as business expenses and taken off your final profit tally at the end of the tax year. To find out what qualifies as a legitimate business expense, head over to our blog on the topic.
6. PICK YOUR LOCATION
The rise in remote working has meant that physical workplaces are evolving. Working from home has now been normalised for many industries. However, a growing number of people are hoping to return to a revamped office culture once pandemic restrictions lift. External workplaces still offer much-needed social interaction and breathing space from the work/life mesh of the home office.
You might be happy operating exclusively from home – especially when you’re just getting started. Even so, you’ll want to think about your workspace.
Are you manufacturing your product or plying your trade at home? You might want to convert your shed or garage.
If you’re at a desk most of the day, is there a quiet space with decent lighting, good wi-fi and a Zoom-worthy background? What equipment will you need?
TOP TIP: If you need to rent a shop front, use your marketing strategy data to pick a location that maximises visibility to your target customer. If it’s an office or a warehouse, scout out the best value for money and make sure you’re accessible by public transport, as well as good road routes.
7. REGISTER YOUR BUSINESS
When you’re ready, it’s time to register your business with HMRC.
Before you do this, here are some questions you should ask:
- What’s my trade status?
- Where will my main office be registered?
- What documentation will I need?
- What are the registration requirements?
- What fees will I need to pay (don’t forget to add recurring fees into your budget)
If you’re not sure how these answer these questions, there’s helpful advice available on the gov.uk website:
- Set up as self-employed (a ‘sole trader’): step by step
- Set up a limited company: step by step
- Set up a business partnership
- Setting up a social enterprise
- Register as an overseas company
- Unincorporated associations
TOP TIP: If you’re not sure which trade status your new business falls under, you can work out the best fit for you by reading our guide about it here.
8. GET INSURANCE
Even if you’re a sole trader working from home, you’re still going to want some cover. After all, we insure our houses, our cars, our phones – why not our livelihoods?
In the UK, the only mandatory business insurance is employer’s liability cover. If you hire staff, even if it’s not on a regular basis, you’re legally required to have this.
If the industry you work in has regulators, chances are they’ll also have insurance requirements. This applies to professions such as law, finance and healthcare, where professional indemnity insurance is critical to practice.
Insurance might seem like an unnecessary expense when you’re trying to build a business from scratch. However, it’s an expense that you’ll be glad for when accidents, mistakes or issues arise and your business is protected. In the end, having business insurance will save you far more money than it costs you!
TOP TIP: Depending on your business scope, clients and providers might have their own requirements for insurance before you both go into business. Make sure you ask about any mandatory insurance policies before committing.
9. OPEN YOUR BUSINESS BANK ACCOUNT
For many small business owners, their identity and business are intertwined. While this might be true on a symbolic level, it’s not quite the same on paper. Whether you’re a sole trader or a limited company, you need to keep your business finances and your personal finances separate.
There are a number of advantages to opening a business bank account.
Briefly, having a business account will:
- Give you better bank rates
- Help you log your expenses
- Help you track your profits
- Flag up any inconsistencies such as unpaid invoices
- Make bookkeeping easier
- Help inform your accountant
TOP TIP: Shop around for the best rates and lowest fees. Most banks will offer special promotions for new business accounts. Make sure you’ve assessed their longer-term fee and interest rates – you don’t want the hassle of switching banks if you can help it!
10. GET A GOOD ACCOUNTANT
When it comes to accounting and bookkeeping, 80% of growing businesses in the UK have decided to hand over the reins.
Ben Michaelis, M.D at ThinkEngine, has elected to work with an outsourced accounting model for over five-and-a-half years to date.
“We feel this delivers our business an independent, considered and expert view on our financial matters.” Michaelis told Addition, “I believe that perhaps, over the years, finance, accounting and ‘the numbers’ can often be seen as a sticking point for some – mainly because it can come across as over complicated or complex.” He feels this is a key reason why people shy away from entrepreneurship or starting a business.
“Potential start-up business owners are often over-thinking the financial ramifications for non-conformance (mainly relating to tax),” He reasons, “rather than considering the benefits of an outsourced approach to alleviate such headache.”
Michaelis isn’t the only small business owner thinking big. In fact, SMBs surveyed in the UK outsource the following accounting tasks:
- tax preparation (71%)
- payroll (50%)
- tax planning (30%)
- bookkeeping (14%)
Of course, you could just set up your own DIY bookkeeping system. There are a number of handy tools for managing this available online. While logging and tracking data is obviously important, an accountant won’t just tally up the numbers. Their job is to analyse your finances and use their expert insights to chart a path to growth.
The bottom line is: if you want to grow your business, you need a good accountant.
TOP TIP: Although their job roles do crossover, accountants are not the same as bookkeepers. Don’t get the difference? Head over to our blog about common misconceptions surrounding accounting.
LAST BUT NOT LEAST
Once you’ve set up your business, don’t forget to celebrate! Jumping all these hurdles is no small feat. Getting your small business up and running is sure to test your entrepreneurial mettle. Make sure you reward yourself for each step of progress along the way.
Zoom Launch Party, anyone?
WANT SOME HELP WITH THAT?
Guy Kawasaki once said, “Great companies start because the founders want to change the world.” And with the right support, you’ll soon be headed down that path.
Being your own boss doesn’t have to feel lonely. Most successful entrepreneurs have benefited a great team backing them up, helping them out and cheering them on.
At Addition, we’re big fans of small businesses. In fact, we made our CORE plan especially for those just starting out. Why not check it out here, or hop on a call with one of our team? Together, we can make it all add up and find you the perfect plan for your new business!