Whether you’re turning a long-held idea into reality, leaving employment to work for yourself, or taking an existing side hustle to the next level, there’s a lot to think about.
And while your focus will naturally be on winning customers and delivering a great product or service, getting the foundations right from the start can make a huge difference to your chances of long-term success.
Here are our top 10 tips:
Get your pricing right
One of the first questions you’ll need to answer is: what should I charge?
It’s tempting to look at what competitors charge and simply setting your prices slightly lower. But remember, pricing isn’t only about being competitive, you need to think about the value of what you offer.
Start by researching your market. What are similar businesses charging? What do their services include? And, most importantly, what makes your offering different?
If you’re charging more, you need to be able to explain why. If you’re charging less, ask yourself whether customers might assume your service is lower quality.
It might be worth offering different packages e.g. basic, standard and premium options. This gives customers a choice and can make your offering more appealing.
Think carefully about your business model too. For some businesses, a combination of subscription services and pay-as-you-go options can provide a balance between regular income and flexibility for customers.
And one final point: be careful with introductory discounts. While they can be tempting when you’re trying to win your first customers, they can also create an expectation that the discounted price is what your service is really worth.
Choose the right business structure
One of the biggest decisions when you start out is how your business should be structured.
For many new business owners, the choice will be between operating as a sole trader or setting up a limited company.
There isn’t one right answer for everyone. The best option will depend on your circumstances, expected profits, plans for the business and how you want to take money from it.
As a sole trader, the structure is relatively straightforward, and accountancy costs can be lower. However, the profits of the business are generally taxed as your personal income, which gives you less flexibility as your profits increase.
A limited company is a separate legal entity and brings different tax and planning considerations. You may be able to take income through a combination of salary and dividends and there can be greater flexibility around how profits are retained or distributed.
It’s always advisable to take advice before you start so you understand the implications of your decision and whether the structure you choose is likely to remain appropriate as your business grows.
Keep a close eye on your cash
You probably have a reasonable idea of your personal finances. You know roughly how much comes in each month, what your mortgage or rent costs, and what you have left after your regular bills. Your business deserves the same level of attention.
Cash flow is one of the most important things for any new business owner to understand.
Create a cash flow forecast from the outset. It doesn’t need to be complicated, even a well-maintained spreadsheet is a good starting point.
The aim is to understand what’s coming in, what’s going out and, importantly, when it’s happening.
That information can help you make much better decisions. Can you afford to employ someone? Is now the right time to take on a business premises? Could you manage the repayments on a loan?
And don’t forget about tax!
Money sitting in your business bank account isn’t necessarily all yours to spend. Make sure you put money aside regularly to cover your future tax liabilities.
Make your money work for you
Cash flow isn’t just about how much money you make, it’s also about when you receive it and when you have to pay it out.
Look at ways to make your income as predictable as possible. Direct Debits and standing orders can be particularly useful for businesses with regular customers, helping to create a more consistent flow of income.
Look at your supplier payment terms. If suppliers offer credit terms, make use of them where it makes commercial sense rather than paying immediately.
Some businesses may also use a credit card for certain business expenses to manage timing and potentially access additional benefits. If you do, make sure you have the cash available to clear the balance in full, otherwise interest can quickly outweigh any benefits.
It’s important to know your cash flow and use it to your advantage.
Understand your tax thresholds
Understanding the basics from the outset can save you a lot of stress further down the line.
There are a few key thresholds and rates you should be aware of, including:
- Personal allowance: £12,570
- VAT registration threshold: £90,000 of taxable turnover in a rolling 12-month period
If you’re running a limited company, you’ll also need to understand corporation tax and the most tax-efficient way of taking money out of the business.
You don’t have to memorise every tax rate and threshold but it’s advisable to know which ones apply to your business and when you need to take action.
A good accountant can help you plan ahead rather than simply telling you how much tax you owe after the event.
Look at potential sources of funding
Getting a new business off the ground can require investment, and your own savings aren’t necessarily the only option.
There are various grants and funding opportunities available to small businesses, although eligibility and availability will depend on your business and where you’re based.
It’s worth looking at what’s available through GOV.UK and your local business support organisations.
Some grants may have specific eligibility requirements, and you may need to adapt or develop your offering to qualify. If you’re considering this route, specialist grant advice can be valuable.
Business finance is another option. Some banks offer loans designed to help new businesses get started but remember that borrowing creates a future commitment.
This brings us back to our earlier point about cash flow: before taking on finance, make sure your forecasts show that you can comfortably manage the repayments.
Get the right software from the start
Good financial records are essential for running a successful business.
Cloud accounting software such as Xero can make it much easier to keep your financial information organised and up to date.
It can also make things like real-time reporting and estimating your tax position much easier, while potentially reducing the amount of time your accountant needs to spend on basic bookkeeping.
As tax reporting requirements continue to develop, having good digital records is becoming increasingly important.
The key is to choose software that’s appropriate for your business and actually use it properly from day one.
Think about where you want your business to go
This might sound like an obvious question but, what do you want from your business?
Not every business needs to become a huge company.
Perhaps your goal is to build a lifestyle business that gives you a good income while allowing you the freedom to enjoy the things that matter to you.
Or perhaps you’re an ambitious entrepreneur who wants to build a team, expand into new markets and grow the business significantly.
The important thing to understand what you’re trying to achieve.
Think about where you want to be now, in five years and even in 20 years. Your answers may change over time, but having a direction will help you make better decisions today.
If your ambition is to grow, remember the difference between working in your business and working on your business. As the business develops, your role may need to evolve from doing everything yourself to building systems, processes and a team that can support growth.
Don’t forget about wills and powers of attorney
It’s not something most people want to think about when they’re excited about launching a new business, but it’s important, whatever your age.
Having a will in place means you get to make the decision about what happens to your estate.
It’s also worth considering Lasting Powers of Attorney for both financial decisions and health and care decisions. These can allow someone you trust to make decisions on your behalf if you’re unable to do so yourself.
It’s easy to put these things off because they’re not urgent today. But putting the right arrangements in place now can give you and your family valuable peace of mind for the future.
Consider whether you need an accountant
An accountant can do much more than prepare your accounts and calculate your tax bill.
The right accountant can help you:
- Make the most of legitimate tax reliefs and allowable expenses
- Understand your numbers and make better business decisions
- Plan ahead for your tax liabilities
- Provide proactive tax advice
- Help with business planning and growth
- Answer the questions that inevitably come with running a business
- Navigate the increasingly complex world of tax and compliance
- Connect with trusted contacts through their professional network, including financial advisers, lenders and potential acquisition opportunities
Perhaps most importantly, having someone you trust who understands your business can give you peace of mind.
If you’re thinking about starting a business, we’d be happy to have a conversation.
