2 Starting a business

Before you set up the business legally there is a lot of hard work to be done. The early steps – steps 1 to 4 – are shown below and you can find out more in the ‘Taking your learning further’ section.

  1. Start with an idea: look for an idea that meets a need that is not being met. The idea is the most important thing you will develop. It does not matter how well you approach a business; it will not succeed without a good idea.

  2. Once you have your great business idea you must research your market: is this idea viable, will it last, do your potential customers want it, how much competition is there? Many businesses fail, not because the idea was poor, but because they were not in the correct place, the cost was higher than the customers would pay, there was too much competition or because the idea did not have long term appeal.

  3. Write a business plan: what are you actually going to do, how much will it cost, how much money will you make, how will you finance it, what materials equipment or staff do you need? Set clear objectives for your business. Creating SMART objectives is one way to help here.

  4. Get funding:

    • Will you borrow from a bank?

    • Will you have investors?

    • Will you use your own savings?

  5. Set up the business: this is the focus of the rest of this section.

When setting up your business there are a number of steps to go through. There is no strict order for the steps but you will need to complete all of them.

Activity 3

Timing: Allow about 20 minutes

This exercise will help you start thinking about steps in setting up a general business, we will consider your business idea later.

Consider each of the following activities and make a note of what you think you will need to consider in each:

  • Choose a business name

  • Register your business name with HMRC

  • Choose a business structure

  • Create a company via Companies House

  • Inform HMRC that you will be self-employed

  • Register for VAT

Comment

Choose a business name

You should seriously think about choosing an original name (the National Business Register allows a search for currently registered business names). Using a name that already exists could result in court action. There are restrictions on names and a little research can save a lot of trouble.

The site has only been used for checking company information and we are not suggesting in any way that it should be used for setting up a business.

Register your business with HMRC

All businesses must be registered with HMRC and that includes self-employment. The registration process can be done online and the elements of the registration will depend on the type of business and business structure.

Choose a business structure

The upcoming activities will look in detail at the options for business structure. Your choice of business structure will impact on the responsibilities you have, the fees you pay and the way in which money is treated within the business.

Create a company via Companies House

This is only needed if you are creating a ‘limited company’. Not all businesses need to be set up through Companies House.

Inform HMRC that you will be self-employed

If you are setting up as a ‘sole trader’ you will need to register as ‘self-employed’ to ensure your National Insurance contributions are met.

Register for VAT

Any business can register to be VAT registered.

Any business with a turnover of more than £82,000 (2016 figure) must register for VAT and if the turnover is less than £150,000 then the business can register for the 'flat rate scheme', a vastly simplified version.

There is a wealth of advice for business owners from accountants, business start-up web sites and most banks on the benefits, issues and requirements of VAT registration.

1.1 Defining what a business is

3 Business structures