Starting a Business in 7 simple steps

Money, money, money

Ah! We find ourselves on the all-too-important topic of money. It’s a fact that without it your business won’t get very far, but how do you get enough to get started, and what should you spend it on? As part of your business planning process, make a list of necessary purchases and expenditure required in order to start up and run your business. (See Step 6 (#litres_trial_promo).)

Money to get the business up and running

There are four main ways most people get enough money to get their idea off the ground and catapulted into a fully-fledged business. Of course, it all depends on the scale of your operation and whether or not you need to buy stock, set up an office or work internationally. But it’s a good start to know the main sources.

Savings and personal finance

The vast majority of people start their business using personal savings of some sort. If you intend to start small or run your business alongside having a job, this might be a good option for you as there is less risk involved and you’re accountable only to yourself for recouping the money.

Family and friends

Family and friends are the next most common source of business funding. They’re a good source of finance to start with if you need a few thousand pounds to set up premises or buy stock. It’s always worth considering the worst case scenario, however: what happens if you can’t pay back the money? What would happen if they wanted their money back early? Do you want them getting involved in the day-to-day affairs of your business? The best course of action is to set up an investor agreement – a legally binding document outlining the amount of investment, the payment terms and any involvement the investor may have in the management of the company. As a minimum, have some form of written contract outlining what would happen in each case and what you are liable for. You don’t want your twenty-year friendship to break down as a result of borrowing money without clear expectations to begin with.

Banks

If you need a large cash outlay to begin with, it’s worth setting up a meeting with a business banking manager to find out what they can offer you in terms of loans or overdraft facilities. They’ll want to see a business plan (see Step 2 (#u86a6b457-0e52-5e16-b0d9-c9b68c42417a)) and might even give you a template to use.

If you need larger amounts of capital to purchase stock or you need to buy what banks call assets, for example, machinery, cars and property, you may need a loan to get moving. It’s worth noting that banks in the UK, for example, don’t seem to be lending money on the same scale as they were a few years ago, so go fully prepared and be ready for detailed questions and knock-backs.

Lending circles and crowd funding

Lending circles and crowd funding are a relatively new phenomenon. The principle here is that lots of people give small amounts of money that count towards your total loan. It works well for creative businesses or social enterprises that can target people who are interested in the cause behind what the business or enterprise does. Depending on the platform, the money might be an investment or given in return for a first run of products. Benefits could include lower interest rates and the ability to obtain funding which cannot be raised through more traditional methods. As lending circles and crowd funding are relatively new, you should fully research these funding methods in your country and read the terms and conditions of the organization you intend to approach to ensure you are aware of any fees or claims on the intellectual property of your business.

Business angels and venture capitalists

Business angels (angels) and venture capitalists (VCs) are third parties that will invest in your business for a return on the profits. They’re looking for businesses with high growth potential that will provide them with a good return on their investment (ROI) and in general, will invest substantial amounts of money. There are a number of hoops you’ll have to jump through, which will vary depending on the investor. You’ll need a watertight business plan for the first three to five years of business, details of your supply chain, customers and finances (see Step 2 (#u86a6b457-0e52-5e16-b0d9-c9b68c42417a)), and you’ll need to prepare proposals and pitches (see Step 4 (#litres_trial_promo)).

Angels tend to invest smaller amounts, typically from tens of thousands up to around £250,000. They’ll take an interest in you and your team as well as your idea but will have an exit strategy and time frame in mind. They often bring contacts and networks and may request a non-executive director position.

VCs typically look to invest millions for a share of the company. Invariably, they will only invest in businesses that show potential to grow very quickly, with strong management teams and proven business models. This option will probably not be right for you at this stage but there’s no harm in thinking big.

It’s best to go through established angel and VC networks or agencies. There are a number of these agencies available for different sectors or locations, so use the internet to research them. Their fees or commission on the investment will vary. It’s worth checking out www.angelsden.com (http://www.angelsden.com).

Registering your business

You have a vision, you’ve identified your aims, market and USP, you’ve thought of a name and secured funding, and now you’re ready to register your business. In the UK, this is done at Companies House. The legal term for this is incorporating your business. It’s a fairly simple procedure which can be done online, and all of the information you need can be found at www.companieshouse.gov.uk (http://www.companieshouse.gov.uk). If you’ve already appointed an accountant, it may be worth asking them to incorporate your business for you as this is usually a service that’s offered by accountants for a small fee.

Registering the business name

Although you may have chosen a name you like, you must also check that it’s not already being used by a registered company. There are websites and organizations that will offer to check your chosen name for you for a fee, and in the UK you can do your own search for free using the Companies House web checker facility. It’s worth remembering that registering a company name does not automatically give you trademark protection on that name. Further information on registering a trademark can be found in Step 2 (#u86a6b457-0e52-5e16-b0d9-c9b68c42417a).

Company structures in the UK

When setting up a business in the UK, you need to decide on the legal structure, which will depend on how you will be running the company. Talk to other business owners to understand why they opted for a certain structure and ask them about the pros and cons. The table below outlines the most common types of companies registered.

Tax

Corporation tax

So, you now have an incorporated company, which means you must also register for corporation tax. This can be done as a joint procedure with the business incorporation process if you chose the Companies House web incorporation process. Either way, in the UK, you must by law tell Her Majesty’s Revenue and Customs (HMRC) that your company or organization is ‘active’ within three months of starting business activity. HMRC offer an online registration process at www.hmrc.gov.uk (http://www.hmrc.gov.uk), where they also explain how and when to complete tax returns.

Value added tax

As well as corporation tax, you may need to register for value added tax (VAT). In the UK, legally you don’t need to register for VAT until your business has made taxable sales of over £79,000 in the previous twelve months (this is true at the time of writing) but there might be benefits to registering for VAT voluntarily even if your sales are lower than this amount. For example, if you purchase a reasonably large amount of goods or services for the business, you will be able to claim back the VAT on these purchases.

It’s worth considering your options and discussing the pros and cons with an accountant. In addition, the VAT thresholds change yearly and have some exceptions, such as (but not exclusively) businesses which are distance selling, either online or by mail order.

Setting up a business bank account

It’s worth setting up a bank account as soon as you register your business as it can take a lot longer to set up than a personal bank account and may well involve a face-to-face meeting with a business, bank manager.

In the UK, banks usually make monthly charges to businesses in order to operate their account and charge for specific services. Which bank you decide to use is your choice but when researching the marketplace, these are the main things to consider.

Do they offer a period of discounted or free banking for start-ups?

Do you need an account that allows you to accept or send payments in different currencies?

Is it important that your business uses a bank with an ‘ethical’ reputation or one which works in ‘charitable’ ways?

Do you need local branches to pay in cash or cheques?

Will your business require an overdraft facility?

Most banks now offer online and telephone banking, which are a must for most businesses these days. If you have decided not to use one of the big high street banks, do check what the smaller banks offer in terms of online and telephone banking.

Key take-aways

Think about the things you will take away from Step 1 (#uc0bf6086-1c3a-540a-a551-e6189aa2e50f) and how you will implement them.

Step 2 (#ulink_6f107c3a-d459-5404-871f-f89ce5cef50f)

FORM A BUSINESS PLAN (#ulink_6f107c3a-d459-5404-871f-f89ce5cef50f)

‘Failing to plan is planning to fail.’ — Alan Lakein, author

Five ways to succeed

Use all available resources to help you to research.

Put your best foot forward.

Be completely honest when doing your SWOT.

Understand what your customers really need.

Seek expert advice when you need it.