6 Steps to start a small business 30% is the increase in incorporated businesses registered with Companies House in 2020, compared to 2019 Did you know excluding London, the South East was home to the highest number of SMEs in the UK in 2020 Did you know 1 in 5 Britons started a business in 2020, or plan to start one in 2021 Step 1: You have your idea, time to make it real You know how there’s a weird British myth that if a bird poops on your head, then you may receive good luck and riches? Well, that logic works for global pandemics, too. If history has taught us anything, it’s that from crises emerge extremely resilient small businesses.Just Eat, Uber, Airbnb, and Pinterest were all founded in the midst of global downturns, and so it’s not a good time—but the perfect time—for you to start yours.Trust us, you’re in good company. Did you know the types of start-up most searched for by would-be-entrepreneurs are ‘online’ and ‘home business’ ideas 47% increase of new UK small businesses started in 2020 Get the support you need If starting a business was a Monopoly board, you can’t pass ‘GO’ and start collecting those pay days until you’ve landed on these squares. Decide, are you a sole trader or a limited company It depends on personal preference and your scaling ambitions: A sole trader and their business are the same – any business actions and debts are the responsibility of the owner.A limited company and it’s owner, however are two different entities. You have unlimited liability for your business. Register your business name Congratutions! It’s a…Ltd company! Know what kind of company you are gestating? Now you need a name. Get creative, but don’t forget that the best names clearly communicate a USP to the market. Once you’re decided, you can register as a limited company, sole trader or partnership on gov.co.uk. Open a business bank account If you are a sole trader, you could use your personal account but having a separate business bank account will help distinguish between personal and business income/expenditure. Shop around for the best deals. There are plenty of online-only providers which have super competitive deals and no fees. Seek government funding, grants and support Don’t go it alone when it comes to your finances. With the UK government pledging to help SMEs through the stages of start-up and growth,there is a range of funding for small business to take advantage of, and many networking opportunitiess, too.Bookmark this page for a comprehensive list. Step 2: Now it’s time to write your business plan Did you know 65% of SMEs don’t have a business plan Not to be dramatic, but this is the blueprint for everything. EVERYTHING. It will make you think, and hard, about exactly what your business is, where you want it to go and crucially how you’re going to get there. Your business plan isn’t a static document. Update it regularly as your company evolves and ensure you are progressions, pivoting and learning Imagine you’re in Dragon’s Den, or that famous elevator people always talk about – what is your USP, who are your competitors and how will yougo to market? Then think about the numbers; what are yoru overheads, your projected sales, cash flow, profit and loss? A business plan will reduce speedbumps – and be something you’d be proud to show Deborah Meaden. Get organised You’ll use your business plan to work towards a series of milestones that will help you you to grow your company. A good template will include: An overview of the business Think hard about what your company does, and what makes it different (its USP). The best businesses solve a problem or have a key makret differentiator.Now make this fit into a paragraph. This is your core, what you always return to for an identity check. Goals What do you want to achieve? Set some SMART objectives (Specific, Measurable, Attaintable, Relevant, Time-bound). Don’t forget, your business plan isn’t a static document.You will update it regularly as your company evolves, and ensure you are progressing, pivoting and learning from the results. Your audience and the market It’s all theoretical until…your start to add in your customers. Who will your business supply and how will it reach them? How big is the market and who are your key competitors?It might be niche, or mass market, and you will amass customer data as you grow, but you need an idea of who you’re targeting. Products and pricing Pricing is often where start-ups come unstuck. Too high, too low? Do your research, are there comparable products or services on the market? Can you afford to undercut them, or are youoffering something more expensive for a better service? Think what are your overheads and running costs and work back from there. Step 3: Know your numbers Did you know 90% of SMEs fa due to cash flow issues Repeat after me. You do not have to be a maths genius. Seriously. If there’s one way you should approach writing your business plan, it’s to accept that it will be an exercise in exposing what you don’t know—and that’s OK. In fact, it’s crucial. Of course, you might be blessed with a numbers brain, but not everyone is a finance expert. However, you can’t learn—said no entrepreneur ever. Improve performance It’s time to write the financial part of your business plan. It will tell you, in black and white, or multi-colour if you’re a hip Airbnb style start-up, if your business is viable.No raw data? Look for information in the public domain such as competitors’ accounts to give you examples of sales/costs/ratios that are relevant to your market-and use these as a benchmark. Sales forecast List your products or services and their price pointHow many sales will you achieve each month? In % or unitsAllow time to get sales established, or quiet periodsConsider seasonal effects on each type of sale or serviceNew product? Look at sales figures for similar products Cost Work out what costs you will have, from materials to staff to mobile phone billsDo some research into what prices you may need to pay as the business matures and your customer base growsRemember! Buying in bulk can lower costs, but you need the cash to be able to do this and it ties up your money in stock Cash flow, and profit and loss (P&L) The profit and loss statement (P&L) is a snapshot of your business and shows worst, expected, and best-case scenarios Work out what costs you will have, from materials to staff to mobile phone billsDo some research into what prices you may need to pay as the business matures and your customer base growsRemember! Buying in bulk can lower costs, but you need the cash to be able to do this and it ties up your money in stock Available funds and finance If you are looking for investment it’s important that you know what your numbers are – not only what injection you’re looking for but also how the money will be used and when investors can see a return. You should know your figures inside out as this will show an understanding of your business. Step 4: Ahh… we’ve come to the ‘Show me the money’ part Honestly, you just want to get paid. The entrepreneurial maxim is passion, sweat, tears—but what about the reason you started the business in the first place, to make money?Efficient invoicing is important for healthy cash flow. SMEs in the UK are paid on average 21 days late (and the rest, we hear you cry), so make sure you have a plan in place to circumvent this. 78% of UK SMEs that are owed money are being forced to wait at least one month beyond their agreement terms before being paid 40% of UK SMEs that are owed money claim that large businesses are the worst late-paying offenders 34% of SME business owners experiencing late payments say they have to rely on overdrafts to help them meet their monthly obligations 43% of SME’s collectively spend roughly £4.4bn in admin costs alone chasing late payments 11% of SMEs struggling with overdue invoices are forced to employ someone to chase up payments Get paid This is when, theoretically, you start to win, and see some progress. You have started to monetise your business idea and found some customers. Now you need to keep cash flow going with regular, automated invoicing. Here’s what you need to know: Invoicing Offer flexible payment options to get paid more quickly…have fewer forgotten invoices, and spend less time following up on missed payments from customers. For example, ‘pay now’ buttons on invoices or phone payments reduce the average time it takes to pay an invoice from 35 to 20 days. Did you know that companies spend 14.2% of the work week invoicing? Automation Set up a system that automatically alerts you…when invoices are received and paid; you’ll know exactly which clients you need to chase and avoid wasting time combing through bank statements. Data on how and when customers pay you is automatically transferred and trackable within good accounting software. Set the rules Getting paid faster is really important for your cash flow, so set your terms up at the outset and stick to them. If your terms are 30 days, stick to 30 days, or if your terms suit your business at seven days stick to seven days, don’t give extended credit. Consistency is key and will save you headaches. Get paid – fast Also look at ways you can get paid quicker where you are in control, so use technology such as Stripe for credit card payments, or GoCardless for direct debit. These are all big and efficient simple tools you can use that are very cheap to use and will definitely increase your cash flow. Step 5: Keep on top of your taxes Did you know 1572 was the birth of the business rates tax. Even Shakespeare had to pay tax. Tax fear is curable, we promise. And the doctor is an accountant. We all grasp the basic idea of personal tax but owning a business means there are several other taxes to consider. What type of business taxes you will need to pay, and when, depend on the structure of your business. You are obliged to know and understand your tax obligations—ignorance is no excuse. But don’t worry, an accountant can help with that. Need to know:Making Tax Digital for Income Tax What is it:A HMRC service that requires businesses to keep digital records and file VAT returns using compatible software. Who?All VAT—registered companies—regardless of size—will need to move to the digital system. Leverage technology Making Tax Digital for Income Tax is an HMRC service that requires businesses to keep digital records and file VAT returns using compatible software. So, get your head in the cloud. Businesses that digitalise their accounting means they have more timely and accurate information, enabling better business decisions to be made, thus saving time and money, anyway. Know your tax dates Start a diary as soon as possible with your key tax dates highlighted. You can find a handy calendar and resources at https://www.sage.com/en-gb/blog/. After starting your business, you need to register for Self Assessment as soon as possible, but definitely by 5 October in your business’ second tax year. Talk to the experts If your business is one in which you incur expenses (that is, you buy materials or consumables), then an accountant is likely to pay for itself. They will know what you can claim to offset your total tax bill, and it will save you much time and effort – not to mention stress – in submitting your tax return. Find an entrepreneurial accountant It might be tempting in the early days to go it alone with your business finances to save on accountant fees, but it’s a false economy. Modern accountants will not only advise you on taxes, they can also help you create business plans and cash flow forecasts that might be vital for loans or grants. Step 6: You’re bossing it You’re in the zone. It’s not easy, but you’re taking control of your business plan, your finances, and your tax. Be proud! Think of us as your own personal search engine for your small business questions. Bossing it in your business, our excellent guide, is your next step. Keep bossing it throughout 2021, click here to learn more about how Sage Accounting can help you start your small business today! Recommended Next Read July 10, 2023 Everything we know about... awkward conversations with clients Browse more topics from this article Business costs Business finances Cash flow Creating a business plan finance
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