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Starting Your Own Business – a Quick Guide

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Written by Nic Redfern, Nerdwallet.

Suffice it to say, the face of UK businesses have changed dramatically over the past twelve months.

Indeed, many companies have been placed under tremendous pressure, forcing management teams to make difficult decisions about the livelihoods of their teams. Indeed, recent research from NerdWallet revealed that over two fifths (44%) of UK managers have been forced to make at least one member of staff redundant throughout the pandemic.

Such data may not inspire optimism at first glance. However, further research suggests that such employees, who have experienced a dramatic change to their employment status have taken it upon themselves to create their own jobs. As such, the UK is experiencing a boom in entrepreneurship.

Indeed, Companies House has recorded a significant spike in monthly company incorporations over the course of Britain’s various lockdowns. In January 2021, 16,108 companies registered, marking a year-on-year increase of 118% on the previous January’s figure of 7,366. This trend has been rising throughout the pandemic, and reflects on a remarkable shift towards entrepreneurship in the UK.

There is clearly some cause for optimism in the entrepreneurial boom, with a more level playing field and unprecedented opportunities to enter the market and scale at pace. Nonetheless, it should be highlighted that startups are not guaranteed success. In the final quarter of 2020, Companies House registered 40,212 dissolutions – this was 28.7% higher than the year before. While much of this will be accounted for by firms that existed before the pandemic struggling with the effects of lockdown, it does reflect on a chaotic and largely uncertain marketplace.

Budding entrepreneurs would, then, be well-advised to avoid looking at the end of lockdown as the starting pistol for sudden and sustainable growth. More than ever before, the businesses who approach the market with a robust and scalable plan will be the ones who succeed.

Business basics

For business owners, taking time to work out exactly what their business is will be the crucial first step. This may sound obvious, or even reductive, but it’s a mistake many people make when rushing their big idea to market.

Entrepreneurs must carefully consider what their product or service is, and what customers they will seek out. Indeed, this has been a make-or-break point for many organisations in the past. So, conducting thorough market research is vital.

Additionally, they should then review their operating capacity, and understand their deliverables under current capabilities. After nailing down these fundamentals, they can then consider how to scale that basic structure appropriately in the future when revenues begin to take off.

For example, if an individual is starting off as a sole trader but planning to add staff as the company grows, a plan for staffing priorities on upscaling is important. It may, for example, be more prudent for one business owner to invest in sales and marketing to ensure demand, while another would invest in hiring a skilled employee to develop the product and ramp up supply.

Businesses large and small alike must take note of these underlying details and ensure they do not lose sight of them. Planning for scale will prevent being caught out by a sudden rush of demand, which can lead to hasty decision-making individuals may come to regret in the long run.

Money talks

The old adage goes that you have to spend money to make money. This may well be true, but it raises an important question – where does the money come from?

A recent study highlighted that UK startups cost, on average, £5000 just to launch. A further study revealed that it will cost the average entrepreneur £22,756 to operate in their first year. This is not small change, so awareness of sources of funding, particularly in the pre-market stage, will be critical to business success.

There are many sources of funding entrepreneurs can look towards, but should consider which is most appropriate for their business structure and product offering.

Individuals may take an informal loan from a friend or relative, or dip into their personal savings to fund the venture. This has obvious upsides, including favourable interest rates compared with traditional lenders, but will obviously not be an accessible option for everyone at the funding levels required.

Looking towards the lenders, loans and credit may be available through banks. That said, startups may find it difficult to get accepted for a loans. This is because most providers require businesses to have a trading history before their application can be accepted. It may not be wholly impossible to get a startup business loan from a lender or bank, but it will be a challenge. As such, entrepreneurs should conduct thorough research, so that they don’t drain resources on applications with little chance of being accepted.

Luckily, there are other options. For example, the Government offer their own startup funding scheme, so entrepreneurs would be wise to check their eligibility for such schemes,

Conversely, it is vital to keep a close an eye on overheads. Raising finance is the biggest challenge for most startups but spending it too quickly will be an even bigger headache.

The remote working revolution has helped level the playing field somewhat. The closure of shops and consumer shift towards eCommerce favours agile startups more than high street market conditions in the past. Meanwhile, such businesses no longer necessarily need to pay expensive rates and rents on office or retail space, and can divert these savings into their product or staffing structure. Home working also raises the possibility of a better labour market to choose from, which could mean cost savings on wages or better talent from further afield than would have been possible before.

It is clear that Britons are, more than ever, filled with entrepreneurial spirit. In the uncertain post-Covid economy, this could be good news for everyone. More innovation, more variety, better service, and more competition for the big businesses on a level playing field. The benefits of setting up on your own are clear to anyone, but careful consideration must be practiced. With the right strategy, and a sensible long-run plan to scale, entrepreneurs could see huge rewards – but only if they concentrate on the finer details.

Nic Redfern is the finance director for NerdWallet UK. NerdWallet is on a mission to provide clarity for all of life's financial decisions. As an independent financial comparison website, NerdWallet provides consumers and businesses with useful tools and insights so they can make smart money moves. From choosing a bank account or breakdown cover to buying a house, NerdWallet is there to help individuals make financial decisions with confidence. Users have free access to our comparison tables and expert content, to help them stay on top of their finances and save time and money, giving them the freedom to do more. For more information, visit NerdWallet.com/uk/.