Your Ultimate Guide on Steps to Start a Business 2024

Last Updated: Aug 16, 2024

|

Business TrendsCompany FormationCompany Guides

Insights as You Write a Business Plan

80% of working millionaires are self-employed. Therefore, if you are considering starting a business, you are about to take one of the most viable paths to financial freedom. For your benefit, we’ve put together this ultimate guide on how to set up a business, offering practical advice, and critical resources.

Whether you simply just have a great business idea, considering funding options, or are ready to incorporate, this guide offers insights to help you take those critical first steps to start a company and elevate.

Let’s dive in and explore the exciting world of UK entrepreneurship!

How to Use Startup Data to Choose and Strengthen a Great Business Idea

According to the Office of National Statistics (ONS), 92.9% of businesses in the UK survive their first year. Of these, only a third make it past five years.

Study shows that the top five factors contributing to businesses not reaching their five-year milestone are –

• Failure to comprehend the prevailing market trends and data, such as business survival rates within their chosen industry;
• Intense competition;
• Unexpected regulatory changes;
• Difficulty in raising new capital; and
• Establishing enterprises with unsuitable legal structures.

These five points form the basis of this guide. Each section seeks to uncover the knowledge and insights you need to lay a solid foundation for your business.

1. Exploring the Implications of Survival Rates of Different Industries

   A comprehensive understanding of the survival rates of businesses in your prospective industry can help you choose the best idea and sector for your business.

   To illustrate, in this section, I’ll assess the performance of five industries using the 2021 census data from ONS. The industries in our focus are —

   • Professional, Scientific, and Technical (PST)
   • Information and Communication (I & C)
   • Transport and Storage (T & S)
   • Construction
   • Retail

   Key metrics, like the number of active businesses, birth (entry), death (exit), and survival rates, highlight various challenges and opportunities.

   

   To illustrate, from the census data snapshot captured above, it’s clear that the Professional, Scientific, and Technical (PST) industry stands out with the highest number of active entities. The diverse mix of businesses within this space, from legal services to architectural firms, pharmaceutical companies, and scientific research businesses, might be a factor.

   
   Insight

   It is evident that the industry lends itself well to professionals thinking of registering as a sole trader as a starting point before venturing into a limited company formation structure.

   Yet, despite its buzzing activity, the PST sector also sees a slightly higher exit rate at 12.7%, compared to the entry rate of 9.5%. Our experience suggests that the high entry standards due to public safety concerns could play a role here. For instance, regulators require healthcare-based operators, such as pharmacies within PST, to have a pharmacy degree. Entry requirements to such programs include Mathematics, Biology, and other rigorous subjects. Because of the high academic requirements, most pharmacies face a shortage of qualified personnel.

   The snapshot also shows that the Information and Communication (I & C) and Transport and Storage (T & S) industries also experience high exit rates. The rate may reflect the demanding environment within these sectors, influenced by intense competition, rapid technological advancements, and strict regulatory conditions. For instance, the semiconductor sector, which affects both communication and transport industries, has been contending with a shortage of input materials and increased cost of components since the pandemic, leading to business closures.

   Of the industries in this highlight, construction and retail show the highest survival rates. For construction, the reasons behind its resilience may include government infrastructure projects that sustained housing demand, especially during the COVID lockdown periods, and an upswing in renovation and remodelling activities. Technological innovations and a shift towards sustainable building methods further enhanced industry growth.

   The resilience of the retail industry, on the other hand, may be attributed to the accelerated digital transformation during the pandemic. Online businesses with a strong presence or those swift to transition to e-commerce proved exceptionally resilient. Additionally, companies that showed agility, such as implementing contactless delivery and pickup options, fared well amidst adversity. To stay successful, retailers must anticipate consumer trends, adopt advanced technology, and provide an effortless omnichannel shopping experience.

   
   Insight

   Business owners considering entry into any industry should carefully assess market conditions and develop strategies to address industry-specific challenges. Additionally, it is worth noting that businesses with a robust online presence, even those outside of retail, demonstrate greater resilience than those without.

   From the preceding, as it has been our experience, some of the best businesses take time to understand and plan for the opportunities and challenges within their landscapes. To keep your business going in the UK, you ought to be able to navigate industry-specific hurdles and have a robust risk assessment approach to ensure long-term success.

   Want to know more than just survival rates? Explore the Companies House search service. It’s a handy tool that allows you to delve into the details of businesses in your targeted niche, from ownership structure to performance.

   Self-assessment questions to help you explore the significance of survival rates and other dynamics unique to your industry.

   Use the self-assessment questions below if you seek to establish a venture in any particular industry.

   • Understanding the industry — What is the total number of active businesses within my chosen industry? Is it densely populated, indicating high competition, or is there room for new entrants?
   • Survival rates and factors — What are the survival rates in my industry? What factors contribute to the resilience of businesses in this sector? For example, in construction and retail, how can I emulate the strategies employed by successful companies?
   • Entry and exit rates — What are my industry’s entry and exit rates? If the exit rate is high, what could be the potential reasons for this? How can I mitigate these risks in my own business?
   • Assessing the impact of regulations — What are the requirements for entry into my chosen industry? For instance, do I possess the necessary qualifications and resources to meet these requirements in the PST sector?
   • Competitive landscape — Considering sectors like I&C and T&S with high exit rates, how intense is the competition in my industry? What strategies can I employ to differentiate my business and stand out from competitors?
   • Technological advancements — How does technological advancement affect my chosen industry? What role does it play in the survival of businesses within this sector?
   • Understanding supply chain — How secure is the supply chain in my industry? For example, how will the semiconductor shortage affect the I&C and T&S industries and impact my business, and how can I mitigate its effects?
   • Digital presence — How significant is having a digital presence for survival in my industry? What steps can I take to establish a robust online presence if necessary?
   • Risk assessment approach — Is my risk assessment industry-specific, factoring in potential financial and operational risks? To what extent do I use industry data and expert insights to identify future risks and establish contingency plans?
   • Resource assessment— What are the human, financial and technological resources available for my business? Can I adequately allocate these resources to differentiate and capitalise on emerging opportunities? Do I have strategies to seek collaborations, partnerships, or other avenues to address existing and potential resource gaps?
   • Consumer trends — Have I implemented mechanisms to monitor and analyse consumer behaviour and preferences continuously? How will I apply these insights to innovate and enhance the customer experience?

2. Don’t do business alone. Join a Community.

   Subscribe to our newsletter and join the ranks of 100,000+ entrepreneurs who receive weekly insights, legal updates, and compliance reminders directly in their inbox.

   I consent to receive emails from Your Company Formations. I have read and understood the privacy statement.

   
   
   Subscribe
   

   
   
   
   

   Assessing the Funding Landscape for Your Small Business

   Understanding the funding landscape helps you position your business to attract the necessary financial support. Some of the top funding sources for UK businesses since 2021 include —

   • Personal investment: According to the start-up UK report, over half of the female-owned startups are self-funded compared to 26% of the male-owned ones. Therefore, if you are a woman, a suitable structure for your business is a partnership that expands the demographic representation of founders and shareholders. Such representation increases the potential for diverse perspectives and widens available funding opportunities.
   • Bank financing: According to the British Business Bank, the gross bank lending to small businesses was at £65.1 billion in 2022, a rise of 12.8% from 2021. The data suggests that financial institutions are more willing to extend loans and credits to support the growth and development of smaller businesses. Despite a significant decline in the proportion of small enterprises resorting to external finance – from 44% in 2021 to 33% in 2022 – the gross bank lending has nonetheless increased, primarily due to an upsurge in average loan sizes. Meaning banks are providing larger loans and substantial support to small businesses.
   • Venture capital investment: Venture capital investments in the UK for 2022 amounted to $31 billion, indicating a 25% drop from the previous year. However, even with this substantial dip, 2022 outperformed 2020 investments by a significant 77%.
   • Crowdfunding: Multiple crowdfunding platforms in the UK, including prominent ones like Crowdcube and Seedrs, focus on diverse areas such as Equity, Debt, P2P lending, Reward, Donation, Buy-to-let, and Mini-bonds. Crowdfunding caters to a wide array of business ventures and is utilised for fundraising by startups.
   • Government grants: The UK government extends several grants intended explicitly for startups, with a particular emphasis on sectors like technology, science, and research. The UK’s diverse grant funding landscape contributes over £8 billion annually. Different types of grants, like direct grants, business start-up grant schemes, and business growth grants, are available. Notable examples of grants open to UK entrepreneurs include the Seed Enterprise Investment Scheme and the Northern Powerhouse Investment Fund.

   Self-assessment questions to help you assess and access funding for your business

   Based on the above information, here are some self-assessment questions you can use to assess the funding opportunities available to your venture.

   • Personal investment: Am I willing and able to self-fund my business initially? If so, how much am I prepared to invest? How might my demographic impact my ability to access funding, and could partnering with others improve my chances?
   • Bank financing: What are the chances of my business securing a bank loan, given the increased willingness of banks to lend to small businesses? I am comfortable taking on a larger loan, and do I have a clear plan to manage the repayment?
   • Venture capital: Considering the significant fluctuations in venture capital investments, is my business in a sector likely to attract VC funding? What would make my business attractive to a venture capitalist, and am I prepared for the potential impact on the control of my business?
   • Crowdfunding: Could my business idea appeal to the public or specific communities enough to run a crowdfunding campaign successfully? Which crowdfunding platform best suits my business model, and am I prepared to manage such a campaign?
   • Government grants: Does my business operate in a sector that is often the focus of government grants, such as technology, science, or research? Am I familiar with the grant schemes available for startups and small businesses in the UK, and do I meet the eligibility criteria?
   • Overall funding strategy: Which funding sources align best with my business plan, financial needs, and risk tolerance? Should I consider a combination of several sources, and how will I manage the different expectations and requirements of each?

3. Location Startup Dynamics for a New Business

   The location of your business operations can significantly affect your venture. It is crucial to investigate your chosen location for factors like customer reach, availability of skilled labour, rate of business activities, and proximity to suppliers.

   

   According to the ONS data, London emerged as the region with the highest number of active businesses, hosting over 606,000 enterprises, thanks to its status as a global economic hub and rich startup ecosystem. It also led in new business births, with 85,000 startups contributing to a 14.1% birth rate, reflecting the city’s dynamic entrepreneurial scene.

   
   Insight

   Our strategic location in the heart of London, City Road EC1, allows us to provide a range of prestigious business addresses to enhance your new company’s image. With this, you elevate your brand’s prestige and get a layer of privacy and identity protection. Explore our innovative and bundled packages and get everything you need to launch your business with confidence.

   However, this robust activity comes with risks, as illustrated by the 70,000 businesses that closed down, representing a 11.5% death rate. The data highlights the competitive nature of London’s business environment and the sustainability challenges businesses face.

   Other regions like the South East and the North West, with 449,000 and 291,000 active businesses, respectively, also demonstrate substantial economic activity. The South East maintained a balanced business environment with a 10.8% birth and death rate. The North West showed a promising growth trend, with a higher birth rate (13.4%) than its death rate (11.6%).

   While London dominates the UK business landscape, other regions offer significant opportunities. The birth and death rates in these areas represent their business vibrancy, with the challenge for startups being to navigate these environments to achieve lasting success effectively.

   Self-assessment questions to help you determine the right location and ecosystem for your type of business

   • Location: Given the concentration of active businesses in London, is my venture well-positioned to thrive in this competitive environment? Or might it fare better in another region, such as the South East or North West?
   • Startup ecosystem: How well does my business align with the existing startup ecosystem? For instance, what is the networking culture of my chosen location? What local resources are available to support my business? Is public regulation friendly to my business? Are there more suitable ecosystems in other regions that better match my business?
   • Competition and sustainability: How well does my business align with the existing startup ecosystem? For instance, what is the networking culture of my chosen location? What local resources are available to support my business? Is public regulation friendly to my business? Are there more suitable ecosystems in other regions that better match my business?
   • Growth opportunities: Looking at the higher birth rate compared to the death rate in the North West, would my business benefit from launching in a region with a promising growth trend?
   • Brand image: How vital is a London business address for my brand image?
   • Services: Am I aware of the services available to support my business in its initial stages?

4. Identify An Ideal Business Structure for Your New Venture

   Categorising legal structure according to liability is crucial as it enables small business owners to assess the level of personal risk and financial responsibility associated with starting up a company in the UK.

   

   Infographic: Personal liability structure vs limited liability structure

   Personal liability businesses such as sole traders and partnerships have the simplest legal structures. These formats have no real separation between business and individual finances; therefore, owners are personally liable for business debts, putting their assets at risk. Also, HMRC requires owners to register for self-assessment tax returns.

   In contrast, limited liability structures like Limited Liability Partnerships (LLP) and Limited Companies (LC) pay corporation tax on profits and protect owners’ assets. The format is designed to separate business and personal finances and limits the founder’s liability to their investment.

   Understanding the distinction between personal and limited liability structures helps you choose a model that suits your idea, risk tolerance, industry and goals. It also influences essential issues such as the ability of your venture to secure financing, attract investors, and enter into contracts.

   By grasping the implications of liability, you ensure that the structure of your business aligns with your needs, safeguards your assets, and establishes a solid foundation for long-term business growth.

   Self-assessment questions to help you decide the proper legal structure for your business

   • Liability: Based on my understanding of the difference between personal and limited liability structures, which suits my business needs and individual risk tolerance best?
   • Risk and asset protection: If I opt for a personal liability structure, am I prepared to risk personal assets for business debts? Should I consider a limited liability structure that safeguards my assets?
   • Business goals and industry: Does my industry typically favour a particular business structure? How does the chosen legal structure align with my long-term business goals?
   • Financing and investors: Will my chosen legal structure influence my ability to secure funding or attract investors? If so, how?
   • Contracts: Does the legal structure I’m considering affect my business’s ability to enter into contracts or establish partnerships?
   • Tax implications: Am I prepared to handle the tax responsibilities associated with the chosen legal structure? For instance, registering for self-assessment tax returns for a Sole Trader or Business Partnership or paying corporation tax on profits for a Limited Liability Partnership (LLP) or Limited Company (LC)?
   • Growth and scalability: Will the chosen legal structure support my business’s potential growth and scalability?

   Register Your Business

   Once you’ve identified a brilliant business idea and the ideal legal structure that aligns with your goals and industry, the next step is forming your business.

   Registration legally validates your venture and sets the groundwork for its operations. Forming your business with a company formation agent can simplify this process, as they can handle the necessary paperwork and liaise with the relevant authorities on your behalf. A dependable agent lets you focus on other essential aspects of setting up your business, such as developing your plan, securing funding, and laying out your market strategy.

   

   Infograpphic: UK Business Startup data

   Open a Business Bank Account for Free

   Keeping track of your finances is crucial in the initial stages as you start a business UK. One practical step towards achieving this is setting up a free business account.

   Free bank accounts provide multiple benefits explicitly designed for startups. They offer the essential foundation for managing business finances, separating personal and business expenses, and helping present a professional image to clients and suppliers.

   When setting up your free bank account, consider a few key factors:

   • Fees: While many banks offer free bank account services initially, be aware of potential costs after the introductory period and for certain transactions.
   • Online banking and mobile access: In the digital age, access to online banking and mobile apps is crucial for managing your finances.
   • Customer service: Excellent customer support can be invaluable for solving issues and answering queries, so choosing a bank with a good reputation in this area is essential.
   • Additional services: Some banks offer other services like access to business advice, planning tools, business credit cards and networking events, which can be beneficial for new start-ups.

   Register through a company formation agent and get a free bank account that best suits your business and financial management needs.

   Apply for a Government-Backed Start Up Loan

   You might require additional funding to finance the initial stages of starting your business. A viable route to explore is applying for a government-backed Start Up Loan.

   Start-up loans are personal loans offered by the UK government for business purposes. They can provide a fantastic kick-start, offering low-interest business rates and free mentoring for your start-up.

   When applying for a start-up business loan, you need to meet specific criteria:

   • Business age and size: Your business must be within its first three years of trading, and you must be a UK resident over 18 with the right to work in the country.
   • Business plan and cash flow forecast: A detailed plan and a 12-month cash flow forecast are essential to demonstrate your business’s viability.
   • Use of funds: You propose to use the loan amount to start or grow your business.
   • Repayment ability: You should demonstrate your ability to repay the loan over 1-5 years.

   Securing a government-backed Start-Up Loan can give your business the essential capital to grow while offering beneficial support and guidance. It’s a fantastic resource for start-ups looking for a financial boost to set them on the path to success.

Complete Tools and Resources You Need to Start a Business In 2024

Building a successful business entails gathering the right tools and resources to ensure a seamless launch and continued growth. Here’s a comprehensive list of essentials:

• Business plan template: Writing a plan lays the foundation of your enterprise. Numerous online resources offer free templates to guide you through crafting a detailed plan that outlines your business objectives, strategies, and potential challenges.
• Market research tools: Google Trends, SurveyMonkey, and Statista are tools you can use to glean valuable insights about your target market and industry trends, which are crucial in shaping your business strategies.
• Legal Advice: Comprehensive legal advice is pivotal when establishing a business. Online legal resources or a consultation with an attorney can provide the guidance necessary as you think through the type of business you want to develop, contracts, intellectual property rights, and regulatory compliance.
• Business name generation tools: Coming up with a unique and catchy company name can be tricky. Online tools like Shopify’s Business Name Generator or Namelix can suggest creative names.
• Company name check tool: Once you’ve brainstormed potential names, a company name check tool will verify their availability. Ensure your chosen name isn’t already in use or too similar to existing ones.
• Tax registration: Understanding tax obligations for your business is essential. The HM Revenue and Customs (HMRC) website provides comprehensive information about business taxes in the UK and the process of incorporating your business for tax. Find out at what point you’ll need to register for corporation tax. Small businesses in the UK are not required to register for the tax unless they reach a turnover of £ 85,000. However, you must register with HMRC once your business gets the threshold.

Read: Company UTR Number: Understanding Its Purpose and Importance

• Company formation agent: To avoid the complexities of setting up a business, get help from a company formation agent. They’ll handle registration paperwork, ensure legal compliance, and offer expert advice.
• Financial management software: Tools like QuickBooks, Xero, or FreshBooks can streamline your financial management process, helping you track income, expenses, taxes, and payroll.
• Business insurance: As part of your startup journey, consider obtaining insurance to protect your company from potential risks and liabilities. Get coverage to safeguard your business against various eventualities, such as property damage, legal liability, employee-related risks, etc
• Project management tools: Platforms like Asana, Trello, or Slack help organise tasks, manage teams, and facilitate effective communication, ensuring smooth business operations.
• Website and social media tools: An online presence is non-negotiable today, especially if you’re running your business from home. Use WordPress, Wix, or Shopify to create a professional website. Similarly, social media platforms like Twitter and Instagram can help reach your target audience and market your products or services.
• Networking platforms: LinkedIn and Meetup offer excellent opportunities for networking and connecting with like-minded professionals and mentors in your industry.
• Funding sources: Funding can be found through online platforms connecting you with venture capitalists or business angel investors, or you could explore government-backed loans and grants.
• Professional development resources: Continuous learning is key in the dynamic business world. Online platforms like Coursera, Udemy, or Khan Academy offer courses to hone your business skills.
• Customer Relationship Management (CRM) software: Tools like Salesforce or HubSpot can enhance your interactions with current and potential customers.

Register as Self-Employed

A self-employed sole trader runs their own business as an individual. It is the simplest business structure and only requires registering for self-assessment.

See also: How to Register for Self Assessment Tax Return Using HMRC SA1 Form

Frequently Asked Questions on Starting a Small Business

1. Is it easy to start a new enterprise in the UK as a foreigner?

   The ease of starting a business UK varies based on nationality, business type, and immigration status. Consider the following before you start:

   • Visa requirements — If you are a non-EEA (European Economic Area) or non-Swiss national, you need a visa to live and work in the UK. Visa type aligns with business activities; the Tier 1 (Entrepreneur) visa, for instance, suits those initiating or assuming control of a UK-based enterprise.
   • Taxation — Understand the UK tax system and your obligations, including VAT, income, and corporate tax.
   • Permits and Licenses — Review industry-specific regulations to establish whether your business requires official authorisations.
   • Legal and Regulatory Compliance — Consider working with an attorney to help you adhere to UK employment requirements, data protection, health and safety, and intellectual property rights.
   • Location — Opt for a conducive business premise, factoring in its proximity to customers, suppliers, and the availability of a skilled workforce.

2. How easy is it to start a business in the United Kingdom?

   According to the latest World Bank annual ratings, the UK ranks number 8 out of 190 economies in the ease of doing business. Meaning the country offers a favourable environment for entrepreneurs and investors. The report indicates that some of the reasons behind the favourable rating are —

   • Forming a company — It takes an average of ½ a day to form a company online and 5 days to register for PAYE, VAT and employer liability insurance.
   • Conducive business environment — The country offers a conducive environment for companies to conduct their commercial activities in the following ways —
     • The process and requirements for obtaining construction permits, electricity, water and sewerage connections are transparent and cost-effective.
     • Land administration procedures, which include search, property registration and title transfer, are fast and reasonably priced.
     • There is sufficient access to business credit information, and the laws on borrowers and lenders are robust.
     • Laws offer sufficient protection for minority shareholders against misuse of corporate assets by directors for personal gains, robust governance safeguards and corporate transparency requirements to minimize the risk of abuse.
     • The UK ranks among the top countries with an efficient tax system.
     • It takes 437 days to enforce a contract or resolve a commercial dispute through a local first-instance court, with the UK coming in fourth after Germany, France and the United States.

3. What to do before starting a business in the UK?

   Below is a snapshot of what you should consider before starting a new business enterprise in the UK

   • Define your company mission, vision and values;
   • Describe your ideal customer profile;
   • Determine the best legal structure for your business;
   • Carryout a company name check to see if your preferred name is available; and
   • Consider getting a dedicated business bank account to separate business and individual finances.

4. How much money is required for business immigration to the UK?

   The amount of money required for business immigration to the UK will depend on the type of VISA.

   • A foreigner ready to invest between £2,000,000 and £10,000,000 in shares of UK-registered companies can obtain an Investor visa without taking an English language test.
   • If you can demonstrate a viable, scalable and unique business idea that does not exist in the market, you can apply for an innovator VISA.
   • For overseas companies that need to expand operations into the UK, an expansion work visa requires the applicant to have at least £1,270 and pay £259 in application fees and £624 per year for healthcare surcharge.

   Please note that specific requirements and costs may vary depending on your circumstances. Always work with an immigration consultant for a smooth process.

5. Can I get a visa if I buy a successful business in the UK?

   Yes. You can buy a UK business, which can apply to be approved to sponsor you as a Skilled Worker visa, valid for up to 5 years, after which you can apply for an indefinite leave to remain, which permits you to continue working for as long as you want.

Article by

Fridar Gichuki

Fridar Gichuki is a lawyer by training turned dedicated content writer & strategist. She brings over 10 years of experience leveraging her legal acumen to support and inspire small businesses on legal, finance, and marketing topics. When not immersed in the world of content, you'll find her hiking across vast plains and scaling high mountains.