Starting a business

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Get the idea!

Any successful business will need a good idea to begin with. It doesn't have to be something completely new. It can be something that it beeing done or being sold somewhere else already, you might just be looking to put a new twist on it.


Once you have an idea

Start to research things.

Look at other businesses in your area and see what mistakes they made. It might be worth going to work for a company in your chosen field for free just to get some experience. Doing this will also allow you to know who your competition is. Find out as much as you can about your customer base. This is crucial. Too many businesses fail because they are not producing what the customer wants - they are producing what they THINK the customer wants, there is a big difference. Market research will be a great way to find this out.

All of this needs to be done before you move onto the next step.

Getting the ball rolling and getting help

You then need to come up with a name for your new business. You need to decide on its structure. You need to write a good business plan and you may need to get some financing.


Prince's Trust

Enterprise programme for 18-30 year olds. This involves both free training and mentoring.


Peter Jones Foundation.

Enterprise programme which is run in colleges nationwide in conjunction with large businesses.


New Enterprise Allowance

Government backed scheme which provides a mentor and an allowance of up to £1,274 over 26 weeks. Government back start up loans may be applied for from £500 to £25,000 at a flat rate of 6% per annum. 


Structure of your company

Initially there are probably three main structures for your company that you could consider. They all have good points and not so good points but one will suit you and your business better than another.


Sole trader

This means that you are on your own. Nobody else works with you or for you but you can always pay outside help on an ad-hoc basis. Your profits are calculated by deducting direct business costs from your income. Any profits that you make are yours to keep but you will have to pay tax on them in the form of personal taxation. Provided your profits are less than £50,000 a year there is no great tax advantage to being a sole trader, a partnership or a limited company. Once your turnover gets above £85,000 a year you will have to register for and pay VAT. There is no need to register your company as a sole trader but you will have to let HMRC know as you will have to fill out a tax return every year as you are now self employed. There is no need to have a specific company bank account. You can if you want but you can use your own personal bank account just as well. If something does wrong with the company you are liable. This means that if somebody sues your company for whatever reason you will have no protection.


Partnership

A partnership is one or more like minded people who go into business together. They share any profits or losses. A partnership needs to be registered for VAT if it's turnover is more than £85,000It is very similar to a sole trader but each person pays personal tax on their share of the profits. These are calculated in the same way by deducting direct business costs from income. The partnership again needs to be registered just with HMRC. By having several brains working together you may find that skill sets compliment each other and there is mutual support for when times get tough. Conversely you may have to check with the other partners before doing anything. Just like being sole trader you and your partners are liable for all costs should anything go wrong.


Limited company

In this structure the business has its own identity. The company will need to be registered with Companies House and HMRC. It would have its own bank account and an accountant would almost certainly be useful. Accounts will have to be kept digitally. If it's annual turnover is more than £85,000 it will need to be registered for VAT. The number of allowable expenses it greater than in either the sole trader category or the partnership category. Any profits are subject to corporation tax which is at a rate of 20%. The company may pay you a regular salary which is taxable at your personal rate. The company may also pay a dividend which only subject to 7.5% tax - this paid out of net profits so 20% corporation tax would already have been paid. As the name suggests a limited company means that you have only a limited liability should things go wrong. 



Business plan

You will need a solid business plan to get funding or investment. Also if you are looking for partners to come into the business at a later date.

It needs to have:

Summary

A paragraph on what the business is, what its aims are and how they will be achieved.

Who are you?

Your background, qualifications, work history.

What are you selling?

A description of your product and who your customer base is.

Market research

Detailed market research which supports your business but it needs to be realistic.

Marketing

Name, website, logo, advertising - include costs.

Competitors

Who are they? Explain how you are going to compete successfully. What is your unique selling point (USP) that makes you stand out from the crowd?

Logistics

Explain how you are going to import materials, store your product, deliver your product or service. Also how you are going to make payments and receive payments.

Costs/pricing

Explains how much your goods or service will cost to produce, how much you will sell them for and how much profit you expect to make.

Financial forecasts

What do you expect to sell and make in the first year? Showing a loss for the first year or two in a new business isn't unusual. Explain how you are going to survive until the company starts to make a profit. Explain how your cash flow will work - there is a good chance that you will have to pay for materials or services before you can generate income.

Back up plan

Explain what your plan B is if the business doesn't work out as you had planned.

 


Raising money

Bootstrapping

Raising money from your own funds, a personal loan, credit cards, personal loan, selling unwanted stuff.

Family & friends

They may be able to help for small loans and may not charge interest.

Grants

Various institutions may offer start up grants which will not be repayable. Worth checking these online - they will be very limited.

Enterprise agencies

Either government backed or business backed financing which may have favourable interest rates attached to them.

Micro loans

Small, short term loans which are widely available

Bank loans

As the name suggests these are loans given by banks. They can be longer term and much bigger than micro loans. Your business plan will need to stand up to scrutiny.

Angels

Wealthy individuals that will give financing and advice in return for part of the company.

Venture capitalists

Companies that will give financing and advice but may take control of parts of the company.