”How to start a business?’ is one of the first questions that most new and aspiring business owners ask. Starting a business is a long term commitment that is rewarding and full of challenges. The UK is home to over 5 million small and medium sized businesses.
Small businesses are diverse. A freelancer is a small business, and Dyson used to be a small business. (that is right, Dyson was a one-man band before he became a billionaire).
Why starting a business is a great idea
Small businesses are the bedrock of the UK economy.
Large companies generate headlines in the daily press, but it is the hard working small businesses (both owners & employees) who often sustain the UK economy in the long run.
Small business success is also the only way that the UK will get out of the Covid-19 pandemic recession. If you are one of the hundreds of thousands of people who are thinking about starting a new business, I hope that this guide helps you to get going.
Below are some eye opening facts about how important small businesses are to the UK’s economic well being from the Federation of Small Business.
Your journey to start a new business should be celebrated as you are doing a great deed not just for yourself, but for the country at large.
How important are UK small businesses?
- 99.9% – Small & Medium business share of ALL the UK business enterprises
- 5.9mn – the total number of UK Small & Medium Sized Businesses
- 3.5mn – number of Sole Traders
- 4.5mn – number of UK limited companies
- 2.0mn – actively trading limited companies
- 1.0mn – small & medium companies that employ people
- 16.8mn – number of employees in small & medium sized businesses (61% of all the UK employees)
- £2.3trn – total annual sales that small & medium sized businesses generate (52% of ALL the sales in the UK economy)
- 176,000+ – new limited companies set up between April – June 2020
- About 10-15% of businesses fail every year according to the recent UK parliamentary report.
How to start a business? – a personal journey
Before we get to our guide, I wanted to share with you my story.
My business dream is that businesses can buy any service or product they choose with a click of a button. MachFast.com is the first step in that journey.
Starting MachFast.com was an easy decision for me. I wanted to build a business that uses technology to help small businesses get on with life.
Personally, I do not like filling out forms. As my kids would say, this is boring, takes too much time and is often confusing.
Starting a business is a unique decision for every freelancer, entrepreneur, passionate professional, skilled tradesman, stay-at-home dad or mum.
I personally have done all of the steps below- from research to prototype to hiring to fund raising. I have done it all with my bare hands. Every day I learn something new as I continue building our business.
Large companies are great. They have a lot of resources to be great. Small businesses must always punch above their weight. MachFast is a force multiplier. We help small businesses to punch above their weight.
Small business owners and managers have to be extremely good with managing time, money and eventually people (if your business is growing). The above, of course, is in addition to having a service or a product that customers want to buy.
The most important and rewarding part of your business is the well-being of your stakeholders – customers, employees, and local community.
Without further ado, here are the Top Ten steps to get you going in starting a new business.
“In the beginner’s mind there are many possibilities, in the expert’s there are few.” Shunryu Suzuki, Zen Monk
Know what you are selling, or planning to sell
If you are thinking about starting your business, you may already have a view on what your business will be selling. We all come from different walks in life. That influences what business ideas we may have and how we arrived at these ideas.
Researching your business idea is a good start on your new business journey.
For many, new business ideas are a natural result of their day-to-day profession. For example, if you are a property solicitor, a plumber, an accountant or a doctor, your new business may be directly linked to your profession (and perhaps you already have a few clients).
We have put together a simple business research guide for you to help you answer some basic questions about starting your new business.
The basic questions you are trying to answer are:
- Am I solving a specific problem in the market…?
- Do potential customers want my products and services… ?
- Do I have skills/capital/partners/time/energy etc… to make this business a reality?
- Can I make a decent living doing this business?
Challenge yourself, ask others, speak to friends, family and colleagues (or ex colleagues) whose opinion you value and trust. You do not have to agree with them- just listen to what they have to say.
Are you a doer?
One of the most important questions you may want to ask yourself – are you a doer? That may seem like an obvious question. Sometimes, the most obvious questions are the most important ones.
This question is very specific to the practical side of running a business.
- Are you interested in learning new skills/information/technology?
- Are you prepared to ‘burn the midnight oil’ and work long hours to get your business off the ground?
- Are you able to deal with failures, frustrations, dead ends etc…?
- Are you prepared to do work that you may consider beyond your immediate abilities, experience, or professional status? (e.g. if you are a Barrister who wants to start a business, do you need a Clerk at your side to do the admin work for you?)
We put together a brief guide as to some of the practical questions you may want to answer before starting a business.
2. Business Plan
“Everybody has a plan until they get punched in the mouth.”, Mike Tyson, (in)famous boxer.
Basic Business Planning
When you set out to set up a new business, basic business planning is in order. Unless you are a tech start-up or looking to raise significant money, your business plan does not need to be very complicated. A basic business plan helps you to get organized & manage various bits that need to get done.
We have put together a simple guide to get you going. Frankly, you can do it on the back of the envelope, a napkin or any other way you find easy for you to use.
Advanced Business Planning
If you are seeking to raise outside funding, StartUp Loans has an excellent business plan template that is slightly more detailed than a 1-pager. If you are seeking to raise money to start a business, then investors and/or banks will want to know & track your progress. Always remember, that cash is king. Regardless of how well you plan, if you’re not able to manage your finances, the best plans in the world will not help you.
Real life and business plans
As Mr. Tyson noted, your plan will not survive your first day in the office. Consider your initial plan as a roadmap that will change daily, but will help you keep focused & organized. Starting a business is the art of zig zagging, experimenting, failing & finding a formula that works well for your particular circumstances. A business plan simply helps you to keep track of all the zigs and the zags.
3. Manage money & finance
“If you think nobody cares if you’re alive, try missing a couple of car payments.” – Earl Wilson, American baseball player.
Business finance review
Please review your finances before you start a new business. As my business school professor used to say: “You don’t have a business, until you have a paying customer.” Here are some rules of thumb that may help you organize & manage your money & financing prior to starting a business:
First Paying Customer
Estimate the number of days/weeks/months/years until you have a paying customer – now double that estimate
First Customer Cost
How much money & time do you need to spend on your business to get the first customer? Now double it.
Second Customer Cost
How much money & time do you need to get a second customer? Now double it
Repeat Customer Cost
How much money & time do you need to get a repeat customer? Now double it.
How much money do you personally need for your daily life while you are sorting out all of the above questions? This is where you may want to be as precise as possible. Review your spending, perhaps speak with your accountant. In this exercise, you may want to see where you can make some savings?
Financing Your Business
Now, using basic first grade math, add all the costs above (including the bread money). That is how much money you may need to finance. Let’s call this money your Startup Capital.
How to finance a new business?
The next big question is where is the Startup Capital coming from? Sadly, few of us can say that we ‘made our money the old fashioned way…’. That means that we need to quickly figure out how we will fund our business. Ideally, you can finance your business yourself. Many small businesses do not require a large capital expenditure. This is the least time consuming and complex way to fund starting a new business. If you have sufficient savings, and are comfortable with the risks, good speed.
If you are not able to finance the business yourself, then you have to look where else you can get the funding you need for your new venture.
- Do you want to borrow money from your family or a bank?
- Do you want to get money from investors?
- Are there government grants or loans that you can access?
Bootstrapping is when you mostly use your intellectual and practical skills to get a product/service to market with limited amounts of capital. This approach works particularly well when you do not need a physical store space or an expensive prototype.
Silicon Valley is full of garage stories – apple was built in one, and apparently Microsoft got its start in a shed. In fact Bill Gates still takes trips into secluded areas to get his thinking done. As an example, if you have an idea for an app & you happen to be a coder, you may be able to build your app by yourself and get your first customers. Perhaps you are an interior designer, you may be able to set up your website by yourself etc…
Bootstrapping is not for the faint hearted. You must really believe in your product, and be more than 100% dedicated to getting it off the ground as your resources are limited (time, money, people).
Friends & Family
This is the most popular way to get initial capital for starting a new business. Friends & family know you well, and are likely in the best position to give your business initial financial support
If you are going to ask your friends & family to lend you money, please be clear with them about the risks and the possibility that you may not be able to pay back the money if your business fails. Ideally, you want to formalise the borrowing, so that you keep the borrowing as business-like as possible. NetLawMan has put together an excellent guide on how to manage your friends & family borrowing & the documentation that you may want to have.
Remember that you can always start new businesses, but finding new family & friends is a much harder endeavor. Hence, best to ensure that everyone is clear on the lending & borrowing relationship that you may have.
The UK Government’s startup funding schemes
The UK government has been very active in supporting startup loan & grant schemes both on the national & local levels. Check out our start up loan guide. Across the UK, local governments have set up a number of grant support programs. You can check with your local Chamber of Commerce and local government business support grants to see what grants are available.
Bank loans for starting a business
Banks are very reluctant to lend money to new businesses without clients or revenue. Banks will likely require credible personal guarantees, collateral and other forms of security against the loan. If you have assets and/or other businesses that you are willing to pledge as security then this option may be open to you. The process usually takes a long time and requires a lot of administrative hassle with forms etc… British Business Bank has a good guide as to the reasons why loans may get rejected and various government support loans that you may be eligible for.
Non-Bank financial institutions
The UK has many non-bank companies that lend money to businesses. These loans tend to be much more expensive than bank loans (higher interest rates, shorter period to repay loans) etc… They will likely have similar requirements as banks or alternatively will charge very high interest rates if you are not able to provide assets or other security against the loans
Crowd funding is when you ask ‘crowds’ of people to fund you. This is likely useful when you already have customers and at least a prototype of your service or product. Check out the UK Crowdfunding Association to learn more about your crowdfunding options.
Investors and equity funding for starting a new business
Unless you are a repeat entrepreneur, part of a university innovation center or spinning a company out of a larger company, you will need to find individuals who will back your business idea. Alternatively, you may find an innovation or accelerator program that may help you to build a prototype, find investors & potentially find you new business partners. The most likely source of initial investments are your friends & family (just like with borrowing).
Friends and family know you, have an understanding of who you are and will likely support your efforts. When you get financing from friends & family, you will need to choose whether they are your investors or your bankers. That means, either you are committing to returning their money with interest (or without) regardless of how your business does (borrowing) or they become your fellow shareholders in the business. If they are shareholders, that means you do not commit to repaying the money, but promise to work very hard to make your business a success and increase the value of their shares.
Accelerators & incubators help start up businesses to get going with financial and non-financial support. They ‘incubate’ commercial ideas, and tend to specialise in specific areas- for example insurance or financial technology. There are many incubators in the UK across different sectors. Here is a great overview of the UK’s accelerator ecosystem.
4. Forming a Limited Company vs. Sole Trader
“Luck is a dividend of sweat. The more you sweat, the luckier you get.” — Ray Kroc, founder of McDonald’s Corp.
Before you get started with your business, you need to figure out how you want to conduct your trade. Do you want to be a sole trader, self-employed, freelancer? Do you want to run your business as a limited company or a partnership? There are advantages and disadvantages to both ways of setting up a business.
Limited companies offer specific advantages that limit your financial liability and risks associated with the business. To read more check out our blog on this topic. If you plan to have business partners, investors or borrow money, then you will most likely need to set up a company or a limited partnership. We always strongly advise that people consult accountants and lawyers before starting companies. For most people, starting a company is straight forward and MachFast.com gets it done in a few minutes. MachFast.com will also sort out a business current account for your new company. You can learn how simple starting a limited company is by reading our blog.
5. Finding a great name
“What’s in a name? that which we call a rose. By any other name would smell as sweet.” – William Shakespeare.
A good business name is very important for your brand and how people remember you. Take care to research different ideas. Make sure the name is easy to remember & is not used by other businesses. If you are thinking of registering a new company, MachFast.com app can help you check if the name is available for new UK companies. Check out our blog on choosing business names to learn more.
6. Regulations, Permits, Licensing
“The young man knows the rules, but the old man knows the exceptions.” Oliver Wendell Holmes Jr., United States Supreme Court Justice
Please check what regulations may apply to your business before you start a commercial activity. For example, MachFast.com is registered with HMRC and Companies House in compliance with relevant rules. If you are planning to carry on a business that is regulated, it is a good idea to contact the relevant body to learn about obtaining the right licenses etc. Check out professional associations & trade bodies that you may want to join (even if not required).
7. Get organized
“It takes as much energy to wish as it does to plan.” Eleanor Roosevelt
When you are starting a new business, you will find that you simply do not have enough time to accomplish everything that you need to get done. If you are OK with technology, it can be a great friend (and a great foe if not used correctly) to help you out. The great news is that there are a number of very basic tools that can help you get going in no time. For website design there are super easy tools like Wix.com and WordPress, Google Docs & Drive for managing your files and documents; Zoom/Skype for calling; Monday.com & Atlassian Jira for project management, Protonmail for secure mail.
8. Marketing & Selling
“I never lose. I either win or learn.” – Nelson Mandela
You may be a natural salesperson, and getting customers is second nature to you. Even if you are, a good starting point is to clearly articulate your value proposition in a simple & digestible manner. All that hard Research & Planning work in Steps (1) and (2) need to be boiled down to simple, straight forward concepts that a 5-year old can understand. Of course if you are doing deep technology, this may be trickier, but even then if Einstein could explain his complex theories in a simple way, so can you.
In my personal opinion selling & marketing has not changed since the 19th and early 20th century. The means & technology of how we deliver marketing messages has changed, but the basic substance has not. You are communicating to your customers that you have a better, newer, easier, more robust service or a product/service.
If you would like a good recommendation, have a look at the 1920s book by Claude C. Hopkins- Scientific Advertising. The book is written in plain english, & sums up everything you need to know (including what to write in your Google and Facebook ads).
9. Mentors & support
“Experience is merely the name men gave to their mistakes.” – Oscar Wilde
Many guides often leave out the importance of good business mentors for your new business. Mentors are absolutely critical when you are starting a new business. Business mentors are great because they have walked the walk and talked the talk. Mentors are like great sports coaches. They are not there to score your goals or generate sales (though great if they do). Mentors are there to be a sounding board, share their history & experience to inform your new journey.
If you don’t already have a business mentor, try to find experienced business people in your industry. Many business women and men enjoy giving back to the business community. Your local chamber of commerce is a good start.
10. Your Business Website
“It does what it says on the tin” – Unknown philosopher
Whether you love or hate technology, the reality is that you will need a website when starting a new business. You have 2 choices: (a) do it yourself or (b) hire someone to do it for you. Before you get going (regardless if you are doing it or someone else is); figure out what you want your website to say – see Marketing & Selling above.
You want your website to be clear & load super fast on people’s computers and phones. That means that ideally, you don’t have too much heavy graphics or fancy animation (unless your business is in design & animation). Google loves simple, fast websites (as do other search engines). Avoid complexity at all costs!
You can see how we communicate at MachFast.com and EnergyBillKill.com. I am not suggesting we are the best marketing people in the world, but I think we do what we say on the tin. Think of your website as a tin.
Once you have settled on what you want to say (and show), you are ready to set up your website. If you are comfortable doing it yourself, then WordPress or services like Wix.com are relatively easy to use. If you need to set-up an on-line store then services like Shopify or Square are more specialised for e-commerce. They all try to make life as easy as possible for non-technical people.
If you want to hire someone, then the best place to start is personal recommendations and sites like clutch.io (for agencies around the world) or Upwork and Fiverr for freelancers. Always, always check the ratings, reviews and portfolios of any service provider. If you can’t see something in the portfolio that you like (and that loads super fast), you want to keep looking.
by Michael Rossman, Co-Founder, MachFast.com