Setting up a company can be a stressful time, with a multitude of decisions to make and factors to take into account.
The actual process of company formation can be relatively straightforward – particularly if you make use of a formation agent – but there are a wide array of more general tasks associated with starting a business, and the choices can sometimes seem bewildering.
We will take a look at some of the key aspects which need to be tackled.
1. Market research and business plan
The first step to starting any business (after coming up with the initial idea), is to decide whether or not there is a sufficient market for it to succeed. This involves thorough market research such as:
- Competition – who are your potential competitors and how can you differentiate your product or service?
- Market size and profitability – is there room for another business, or will making a profit be difficult due to market saturation?
- Customers – identify your customers, and ideally speak to potential customers to find out about appropriate pricing, levels of demand etc.
- Research – there is often existing market research which can be obtained online and helps to build a better picture of the sector. It’s also worth reading any articles from sector-specific commentators (e.g. in niche business publications) as this can highlight current and future trends.
If the market research looks positive, the next step will be coming up with a comprehensive business plan. This is especially important if you wish to approach investors for seed funding, as they will want to see whether they can make a healthy return on investment (ROI).
2. Choosing a company name
There are many rules which must be followed when choosing a company name, and choosing the wrong one can lead to the application for incorporation being automatically rejected.
Issues regarding company names include:
- Sensitive and offensive words – Companies House maintains a list of ‘sensitive words’ which require the prior approval of the Secretary of State to use in a company name (e.g. words which represent a regulated activity or imply a connection with the UK government).
- ‘Same as’ and ‘too like’ names – names obviously cannot be identical to an existing company on the register. But even if the name is slightly different, if it is deemed to be too similar to another name, it is still not permitted.
- Limited – Another important rule around naming companies is that limited private company names should generally end in either ‘Limited’ or ‘Ltd’ (the Welsh equivalents ‘Cyfyngedig’ and ‘Cyf’ can be used instead for companies registered in Wales).
3. Register your company
Limited companies must be incorporated with Companies House. It is possible to register a company online, either direct with Companies House or using a company formation agent such as Quality Company Formations. Alternative methods include using third party software or applying to incorporate a company by post (these will require the use of form IN01).
As well as registering your company, it will be necessary to register with HMRC for purposes of corporation tax – and potentially for PAYE, self assessment and VAT.
4. Bank accounts and finance
Although it is not a legal requirement to have a dedicated business bank account, it is recommended as a way of ensuring that business records are kept separate from personal finances.
The financing of a business venture should be given some serious thought, as the first few months may only see meagre profits, or even losses. Work out how long any personal savings will last, and consider whether to take out business loans or ensure sufficient overdraft facilities. Government loans and grants may be an option in certain sectors. Also consider investors and crowdfunding opportunities.
5. Business premises
Many businesses – particularly services industries – will start off from home, and this can help to keep costs down. However, even for people who work alone, they will often benefit from office environments where they can share ideas with other entrepreneurs, and co-working spaces which cater to this need are currently thriving.
Even when a business expands, hot-desking in a co-working space can provide for multiple colleagues to work in the same office, albeit shared with other businesses. But at some point a dedicated office may be required.
Physical shops will generally require dedicated premises, and it is vital to ensure that any property is allowed to be used for the required purpose in accordance with the Town and Country Planning (Use Classes) Order 1987 (e.g. many business properties can only be used for offices, as opposed to cafes or restaurants, etc.).
6. Marketing and brand
Marketing your new business will often be key to generating new customers. Unless you have a shop or retail business – in which case business premises with a sufficient level of footfall is crucial – websites and online marketing will play one of the most important roles in drumming up business, particularly at the start.
Although websites can often be created quite easily these days, it often pays to engage a professional, especially in terms of any graphics (e.g. company logo) and content. A branding expert can help in terms of both getting visuals and messaging to appeal to your target market and provide consistency across the board.
Aside from building an attractive and user friendly website, it is helpful to get to grips with various other online marketing tools, e.g:
- SEO – the aim of search engine optimisation (SEO) is to increase traffic to your website. This is largely a matter of creating effective content (e.g. blogs) which draw in potential customers.
- Advertising – many businesses use online ads to generate additional traffic, often in combination with SEO, and the most widely used service is Google AdWords (since Google accounts for around 90% of the search engine market).
- Social media – unless social media is properly managed, it can end up being more of a liability than an advantage – so, unless you are willing to spend a reasonable amount of time tending to Facebook, LinkedIn, Twitter, etc, it may be advisable to source this out to an agency.
- Analytics – as well as generating traffic, it’s important to understand its fluctuation and flows, to improve your website and ultimately lead to more conversions from ‘eyeballs’ (i.e. website visitors) to customers and sales. Google Analytics is one of the most widely used analytics tools for web stats, and it is free to use.
Other more traditional forms of marketing may well be helpful, depending on your sector, e.g. leafleting, newspaper adverts, TV advertising, etc.
7. Supply chain
As well as finding customers, most businesses will also need to source reliable suppliers.
These can range from professional services to manufacturers who are crucial to the production process (in the case of goods). Relevant contracts will need to be drawn up, to ensure that the supply chain is robust and secure.
8. Permits, licensing and insurance
Various businesses will require specific permits and licenses, depending on the product or service. For example, alcohol licenses must be obtained for anywhere serving alcohol on their premises, while food manufacturers will need to ensure they meet food safety standards, etc.
Many companies will also require certain forms of insurance. Employers’ liability insurance is mandatory for any business which employs staff (hefty fines are applied to employers who fail to take out this insurance). Public liability insurance is another popular form of insurance and, although not legally required, can be very useful to insure against claims by the public (e.g. if a customer slips or trips on your business premises).
Professional indemnity insurance is often taken out by services companies providing professional advice, to protect themselves from claims in respect of their advice (e.g. if a client loses money due to poor financial advice).
9. Data Protection
Virtually all businesses will process some form of data, be it from employees, customers, suppliers or third parties.
Since the General Data Protection Regulation (GDPR) came into force, huge fines can be levied in respect of data breaches or mishandling of data. It is vital that all businesses understand at least the basic requirements of the Data Protection Act 2018 and related legislation.
See the Information Commissioner’s Office (ICO) for more details.
10. Intellectual Property
Intellectual Property (often just called IP) refers to creations of the mind, including:
Sometimes the most important asset of a business lies in its intellectual property, so it’s important to ensure it is protected. For example, innovative products will often rely on a patent to prevent them from being copied and sold by other companies.
See GOV.UK for more information about intellectual property.
11. Employment law
As well as registering with HMRC as an employer and setting up payroll (PAYE), any company which employs staff must understand the legal obligations which it owes to its employees (as well as ‘workers’ who are not employees). Various employment laws which must be taken into consideration include:
- Health and safety
- Unfair dismissal
- Discrimination and protected characteristics
- Redundancy rights
- Working hours
- Workplace pensions
- Grievance procedure
For more information about employment law, see Acas.