How to Start a Business in 7 Steps

Through good times and bad, the UK’s entrepreneurial spirit is unwavering. That drive has led small and medium-sized enterprises (SMEs) to become the nation’s business backbone – so much so that they account for 99.9% of the country’s total business population, and make up over 60% of the country’s employment.

These figures are bolstered by the 801,006 new businesses that were registered in the financial year across 2022/23, despite rising inflation, surging energy prices and the cost of living crisis. Starting a business in the UK remains popular.

For many, though, the thought of joining the ranks of the nation’s entrepreneurs can feel as daunting as it is exciting. That’s why we have put together a guide on how to start your own business – from assessing your strengths and weaknesses to getting your brand out there.

By following these seven steps, you can find out how to start a business in the UK, and hopefully secure a long-term future in your chosen industry.

Starting a business: your 7-point checklist

Develop your business idea.
Conduct market research.
Write a business plan.
Finance your business.
Register your business.
Set up your business.
Promote your business.

Step 1: Develop your business idea

This is maybe the most important step of starting a successful business: actually coming up with a business idea. And not just any idea – a great business idea, one that has legs and stands the best chance of succeeding.

Of course, there is a very good chance you have an idea already. However, there are a few ways you can approach generating a business idea if you are looking for inspiration.

Solve a problem

Can you solve a problem for customers or businesses?

This could be an issue you encounter in your everyday life, such as a badly designed household appliance; an annoyance you’ve come across in your career such as a frustrating piece of software; or a bigger, global problem such as the climate crisis.

Predict the future

Is there a problem people might not know they have yet?

Is there a product you think will only become more vital in the future, or a service that can take a slice of a niche-but-growing market? Spot a situation like this and you have the makings of a successful venture.

Be cheaper

Do you think you have a way to provide a product or service that is cheaper than the current market rate, without sacrificing quality? An easy way to attract attention is by offering something people already want and use, but for less money.

Do it better

Being cheaper isn’t the only way you can improve on a pre-existing product or service. Someone else might have had a good idea, but executed it poorly. If you think you can do it better, you might be on to something.

Innovate and disrupt

Do you think you can shock an industry that has long been set in its ways? The rise of so-called online-only challenger banks shows that, with a bit of innovation, even the oldest of professions can be forced to change.

Turn a hobby into a business

Do you have a hobby, interest or other source of expertise that can help you to build a successful business? You might be better able to create something in an area where you are knowledgeable and passionate.

Step 2: Conduct market research

A great business idea isn’t worth the paper it is written on without thorough, extensive market research. But how do you do market research for a startup or new business idea? The objective of market research is to find out more about your potential customer base and competitors, a process which will leave you better prepared to set up your business.

You can manage this research in several ways, including conducting online research, talking to industry customers and competitors, or going to rival stores and locations to check out the competition.

The two most important questions to keep in mind about your business idea are:

Is there demand for my product or service?
Who is my target market?

Competitor landscape

You need to gain a greater understanding of the market your business will be operating in, including:

who your biggest competitors are and how they are positioned
what differentiates each competitor and what traits they share
what’s your unique selling point (USP) – how you can differentiate yourself from your competitors
any issues your chosen industry or market is facing

Target market

When it comes to your audience or target market specifically, you need to ask yourself:

Who will buy your product or service?
What are people looking for from that product or service?
What pain points have they experienced in the past?
How much are they willing to pay for your product or service?
How will you communicate with your target market?

Step 3: Write a business plan

Once you are confident that your business idea has legs, it is time to write your business plan. It will give you clarity, help you to spot potential issues that need to be addressed, and can give you hard goals with which to measure your progress.

While you can assess your finances first, creating a business plan beforehand will help give you a better idea of exactly how much money you need. It will normally also be required if you apply for a start up loan or business loan.

Your business plan will likely need to include:

an executive summary
a company description
details on management and organisation
market analysis
marketing and sales strategies
details on your service or product line
funding requirements
financial projections

For a detailed guide read our article on how to write a business plan.

Step 4: Finance your business

Writing a detailed business plan will help you figure out the amount of money you need to start your business. While you might be able to start some businesses with no money or as little as £1,000, it is highly likely that your business plan will indicate that you need more money to get started.

But how can you fund a new business?

You may need to combine the various funding options below to get your start up off the ground.

» MORE: Start up funding

Your savings

Using personal savings to start your business will allow you to retain full ownership. If you are using your own savings, it is wise to make sure you are not putting yourself in a financially precarious situation when it comes to your personal finances.

Friends and family

At the beginning of your business journey, you may want to turn to your friends and family for financial, as well as practical and emotional, support.

Borrowing money from friends and family can be tricky, though. So it is best to draw up a written agreement, as you would with any other lender, with specific repayment terms, in order to avoid any disagreements in the future.

» MORE: Lending money to friends and family

Small business grants

There are a range of non-repayable and partially repayable start up business grants across the UK, as well as for businesses in England specifically.

Similarly, there are dedicated grants if your business is based in Scotland, Wales and Northern Ireland.

You may also be able to find options for specific groups, such as business grants for women.

Business grants can be competitive, so make sure you take your time with your application, and check the eligibility criteria beforehand to avoid wasting your efforts on schemes you do not qualify for.

You can find a list of the full range of government business loans and grants using the Department for Business, Energy and Industrial Strategy’s search tool.

Start up loans

A start up loan is a form of funding designed specifically for new businesses. As with other forms of business finance, you will borrow a lump sum and pay it back in monthly instalments, with interest on top.

You should make sure you understand the different types of start up loans before applying.

With the government-backed Start Up Loan, you can borrow up to £25,000 over a term of one to five years, at a fixed interest rate of 6% per year. You should be aware, however, that the Start Up Loan is structured as a personal loan, meaning that you, rather than your business, is liable for repaying the loan.

Other start up loans will be structured as traditional business loans and come with different interest rates and maximum borrowing amounts.

Government business loans

Alongside the Start Up Loan scheme, there are other government business loans that may be available to your organisation.

This includes loans from various investment funds around the country.

Business loans

If you are ineligible for the government-backed Start Up Loan, you could look into applying for a traditional small business loan.

These can be more difficult to secure as a start up, as lenders use your business credit score and trading history to assess whether or not to approve the loan. However, it is not impossible.

You may need to offer a personal guarantee in order to successfully apply for a business loan. Alternatively, you could provide an asset as collateral and apply for a secured business loan.

When taking out any form of loan, you should only borrow what you can afford to pay back.

» MORE: How do business loans work?

Angel investors

Angel investors tend to be wealthy individuals looking to invest in new businesses in order to make a decent return down the line. Normally, this will involve them offering you funding in exchange for equity or convertible debt. They may also offer mentorship and support as you develop your business.

There are a number of platforms, such as the UK Business Angels Association and the UK Angel Investment Network, you can use to find potential angel investors.

» MORE: What is an angel investor?

Crowdfunding

Another option for raising money for your start up is crowdfunding. This involves securing funding from more than one source.

There are three main types of crowdfunding:

Debt-based crowdfunding: This is where you are matched with investors on a crowdfunding platform. You then repay the amount you have raised in monthly instalments, with interest.
Equity-based crowdfunding: This is where you offer a stake in your company to investors in exchange for funding.
Rewards-based crowdfunding: This is where you offer tangible rewards, such as early access to a product or service, in exchange for funding.

» MORE: Crowdfunding for business

Step 5: Register your business

One of the first official steps you will take when starting up is choosing a business structure and then registering your business. You should take your time and research which business structure will best suit your needs.

» MORE: Should I register as a sole trader or limited company?

Sole trader

If you are a sole trader, you are the exclusive owner of your business, and can keep all of your business’s post-tax profits. It also means there is no separation between you and your business – making you personally responsible for any losses your business makes.

How to register as a sole trader

As a sole trader, you are not legally required to register your business at Companies House. However, you must register as a company director with HM Revenue & Customs (HMRC) in order to pay tax each year by completing your self-assessment tax return.

You can register for Self Assessment at Gov.uk.

Partnership

A partnership is when two or more people, labelled as partners, share the responsibilities of running – or owning – a business. This includes sharing the risks associated with the business, any profits or losses, and the bills associated with running the organisation.

There are three main types of partnerships:

Business partnerships: Sometimes known as general or ordinary partnerships, this type of partnership works in a similar way to sole traders. Partners are not legally distinct from the business. Therefore, if one partner resigns, dies or goes bankrupt, the partnership must dissolve. This does not mean, however, that the business has to stop.
Limited partnerships: A limited partnership must have at least one ‘general’ partner and one ‘limited’ partner. General partners manage the business of the partnership, while limited partners do not participate in day-to-day operations and have less liability.
Limited liability partnerships (LLPs): When incorporating as a limited liability partnership, you must have at least two ‘designated members’ at all times, as well as any number of ordinary members. Designated members are responsible for registering the business, keeping accounting records and submitting them to Companies House, as well as reporting any changes to the business.

How to register as a business partnership

In order to register as a business partnership, you will need to:

Choose a business name, following the government guidelines.
Choose a ‘nominated partner’ – they will be responsible for managing your business’s tax returns and keeping your business records up to date.
Register the partnership with HMRC in order to pay tax through Self Assessment.
Register for VAT if you think your VAT taxable turnover will be greater than £90,000.

You do not need to register with Companies House.

You can register as a business partnership at Gov.uk.

How to register as a limited partnership

In order to register as a limited partnership, you will need to take the following steps:

Choose a business name, following the government guidelines.
Register the address of your principal place of business.
Appoint your general and limited partners.
Register with Companies House.
Register with HMRC for Self Assessment.
Register for VAT if you expect sales to be more than £90,000 a year.

You can register as a limited partnership at Gov.uk.

How to register as a limited liability partnership

In order to register as a limited liability partnership, you will need to:

Choose a business name, following the government guidelines.
Register your business address, which will be publicly available.
Choose at least two designated members.
Create an LLP agreement detailing how the partnership will be run.
Register with Companies House.
Register the business for Self Assessment with HMRC.
If you expect your business sales to be over £85,000, register for VAT.

You can register as a limited liability partnership at Gov.uk.

Limited company

If you choose to incorporate as a limited company, you as an individual will be legally and financially distinct from your business. As a limited company, you will have shares and shareholders and can keep any post-tax profits.

How to register as a limited company

In order to register as a limited company, you will need to:

Choose a business name, following the government guidelines.
Choose your directors and a company secretary.
Decide who your shareholders or guarantors will be.
Identify the people with significant control (PSC) over your company.
Prepare a document detailing how your company will be run.
Research which company and accounting records you will need to keep.
Register your office address.
Figure out your standard industrial classification of economy activities (SIC).
Register with Companies House.
Register with HMRC in order to pay Corporation Tax.

You can register as a limited company at Gov.uk.

» MORE: How to register a company name

Step 6: Set up your business

Once you have chosen your structure and registered your business, it is time to go about setting up your business for its day-to-day operations.

Rules and regulations

Depending on your business and industry, there could be a number of specific rules and regulations you will need to adhere to, as well as licences and permits you may need to apply for.

You can run a business from home, or from separate premises. You can provide physical products, or offer services to customers. Depending on these factors, you might have to obtain different licenses or permits.

These regulations will also be informed by how you have set up your business, and whether you are a sole trader, or the type of partnership or limited company you’ve set up.

You can find more government guidance on business regulations at Gov.uk.

Keeping on top of your accounts

Making sure you are on top of your business records and accounts is a must if you want to avoid getting into trouble with HMRC and even having to pay a fine. Especially when it comes to paying your taxes, from Corporation Tax to VAT.

One option you may consider is hiring an accountant. They can help to ensure you are filing everything correctly. Similarly, you could purchase accounting software in order to take control of your records yourself.

A good first port of call is opening a business bank account. While you can use your personal account if you are a sole trader, assuming your bank allows it, the moment you incorporate as a limited company or partnership, you must open a business bank account.

If you are a sole trader, opening a business bank account still has its benefits, as it will help keep your personal and professional finances separate. You can even find specific business bank accounts for start ups.

» MORE: Benefits of a business bank account

Build a business website

Building a website can help many different types of small businesses.

Could your business sell products or services online? Is your business a restaurant or cafe that could showcase its menu and offer table or event bookings through a website? Is your business offering something people search for on the web? Could an online presence improve your customer service?

If so, a website could be a key addition.

However, this doesn’t necessarily mean developing one from scratch, as there are many online services that will allow you to quickly build a website, using templates and plug-ins that can be customised to suit your needs.

Find business premises

If you are not running your business from home, you will need to find the perfect business location. Factors to consider include, but are not limited to:

size of building
cost of commercial rent (if leasing) or commercial mortgage (if buying)
how much footfall an area gets
whether the location is suitable for your target market
building accessibility
local competition
specific permit requirements in the area
cost of business energy bills
cost of business rates

Build your team

While you can start a business on your own, certain ideas will require you to build a team.

The cost of hiring someone in the UK isn’t cheap, so it is important to get the process right. Understanding what to put in a job description will help you narrow down the field, as will learning how to interview someone properly.

When hiring, you will also need to be aware of your responsibilities as an employer, from paying the right level of National Insurance to taking out employers’ liability insurance.

» MORE: 70 questions to ask in an interview

Protect your business

Protecting your business can mean many things. For example, you may need to consider business insurance. This could include public liability insurance if you regularly come in contact with third parties, or professional indemnity insurance if your business involves you providing advice.

You might also need to look into trademarks, to make sure your business’s intellectual property is protected, or create a set of terms and conditions so your customers know exactly what they can expect from your products or services.

It could even be as simple as installing CCTV and burglar alarms at your premises to keep it safe.

Step 7: Promote your business

Now that you have set up your business, it is time to promote it.

» MORE: How to promote your business

Ways to promote your business

Here are just some of the ways you could promote your new business:

Marketing

What kind of marketing you choose will depend, among other things, on your budget and your business. Types of marketing to consider include:

digital marketing – website articles, online stores, reviews, pay-per-click and display advertising
offline marketing – posters, billboards, TV advertisements
email marketing – sharing content, deals, promotions via email
social media marketing – utilise platforms like Facebook, Twitter, Instagram and TikTok
affiliate marketing – working with partners who will advertise your products or services

Also bear in mind your audience – business-to-business (B2B) marketing and business-to-consumer (B2C) marketing tactics will likely differ.

Social media

You can utilise your own personal social media accounts, as well as those of friends and family, to help your business reach a wider audience.

Remember to consider your target audience. If you are selling to other businesses you might rely on LinkedIn as your primary social media platform, whereas a brand targeting consumers might depend more on Instagram and TikTok.

Local listings

Ensuring that your business is featured in the local listings of your area is a great way to get the right sets of eyes on your services.

Similarly, there may be industry-specific listings that you can contact for additional exposure.

Ask for reviews

A good way to build up buzz, trust and awareness for your business is by asking your customers to post online reviews. Important sites include Trustpilot, Feefo, Google Maps and Facebook.

Media relations

Another route you can take to promote your business is by building your media presence. While you might not be able to appear in the big broadsheets and tabloids immediately, you could start by approaching local news outlets in order to drum up interest in your business.

Search engine optimisation (SEO)

When you create a business website, it is important to consider search engine optimisation (SEO). This is to ensure your website is findable on search engines, such as Google or Bing. After all, the higher you rank on a search engine, the more likely your business is to be seen, and the more customers you may be able to secure.

Your site’s technical configuration, the content on its pages and how often it is linked to all play a part in a good SEO strategy.

What happens next?

Now comes the hard part: maintaining day-to-day operations, while trying to ensure your business grows and expands.

Starting a business requires patience – you may not see immediate results, and will need to strike a balance between sticking to your original plan, and accommodating changes in the market, and your own personal situation, when needed.

If at any time you are feeling overwhelmed by the pressure of running your own business, there are avenues of support you can reach out to.

In England, there is the Business Support Helpline, as well as The Local Enterprise Partnerships Growth Hub.

In Wales, you can contact the Business Wales Helpline, in Scotland there is Business Support Scotland, and in Northern Ireland there is the Invest Northern Ireland Helpline.

» MORE: How to grow your business

Image source: Getty Images

About the Authors

Connor Campbell

Connor is a lead writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and…

Duncan Ferris

Duncan Ferris is a business writer with expertise in pensions, investing and personal finance. Though he began his career as a pensions industry professional, he transitioned to journalism in 2017.…

Dive even deeper

What is a VAT Loan?

The quarterly obligation of paying VAT returns to HMRC can be challenging for VAT-registered businesses for several reasons. VAT loans are a source of financing companies can use to avoid incurring late payment penalties by missing deadlines.

Duncan Ferris

Top 6 Crowdfunding Sites UK

Raising money through crowdfunding could help you to start a business, launch a new project or expand the business to the next level. But determining the best crowdfunding platform for your business is a step that can turn crowdfunding failure into success.