The Definitive Guide to Starting a Small Business
The decision to start a small business is a huge one. Perhaps you’re reading this because you’re a mum wanting flexibility to work around your family commitments. Maybe you’ve been made redundant, or decided that corporate life isn’t for you. Whatever your reason for starting a business, doing so can be exhilarating, terrifying and life-changing in equal measure.
When you get it right though, starting a small business can be one of the best decisions you will ever make!
Research also shows that our desire to work for ourselves also accelerated as a result of the pandemic. For the first half of 2021, nearly 80 new businesses were registered in the UK every hour! But to contrast this, research also shows that around 20% of new businesses fail in the first year, with 60% failing within the first three years.
The key to not being part of this 60% then, is to make sure that you’ve considered your fledgling business from all angles, and that your small business toolkit is as full as possible. And this, our Definitive Guide to Starting a Small Business, will help you to do exactly that. As you read through, you will also find links to blog posts where you can read more detail on a range of different topics.
Whenever you see a successful business, someone once made a courageous decision.
Foundations for starting a small business
The first thing when planning to start a small business is the idea itself. If you haven’t got a specific idea, what options are available? And most importantly, is whatever idea you choose actually a good one? How can you be sure?
The good news is that there is a lot of information out there that can help you, including our own suggestions which you can find here. Broadly speaking, when choosing your idea you need to take into account three things:
- Passion – if you’re not interested in your idea, why should anyone else be?
- Skills and experience – will your business be based on existing skills or experience (eg. baking, photography)? And if you need to enhance your skills or acquire new ones, how and when will you do that?
- Preference – Do you prefer a ‘ready made’ business, like a franchise, or purchasing a business from someone else?
Then there’s the question of whether your idea is actually any good! And this is where the research comes in. Look at market data. Speak to your potential customers. What’s already out there that could be similar to you? And if there is, what makes you different? Starting a small business with little or no research is very risky!
The will, the why and what success means to you.
There’s absolutely no denying that life as a small business owner is a roller-coaster. There will be huge highs and just as massive lows. You’ll feel like giving up. You’ll doubt yourself and question your decisions. But if you have the drive and the determination to succeed, you will give yourself the best chance of reaching your goals.
Another important part of this is your ‘Why’. It’s so important to be clear on this from the beginning, and to be honest with yourself about it. What is your reason for choosing to start a small business? Is it money? Flexibility? Necessity? Whatever your reason, by checking in with your Why every now and then, you’ll find your passion and your drive reignited.
Your Why is also closely linked to your definition of success. This definition will be different for everyone, so don’t be drawn into thinking that you have to emulate other people. One person might have lofty financial goals, or need to make a certain amount of income to support their family. Another might be driven by the flexibility to work when and where they wish. But what does ‘success’ look like for you? And how will you know if you’ve achieved it? Something to think about, and we’ll revisit this in the goals section later.
Timing is everything
This point is partly personal, partly market- and opportunity-driven. From a personal perspective, it’s really important to consider whether you’re actually at the right point in your life to start a business. For example, do you have the time to dedicate to it and give your fledgling enterprise the attention it needs? Are you able to invest in your business if needed? And what about supporting yourself and your family until things hopefully become more established? By extension, is there a particular deadline by which you need to have achieved a certain level of income?
Then there’s the question of your professional situation. Are you able to spend all of your ‘work time’ on your business from the outset? Or do you need something of a transition period? If the latter, how will that work, and how long will it last?
We have touched on the impact of starting a small business on family above, particularly around financial considerations. But it’s just as important to make sure that you have their support on this small business adventure! You can read more about who else you need in your support team below.
Before you start building your business, you need to decide on the most important legal structure for your venture. There are a number to consider, but here are the four main types in the UK:
- Sole Trader – this is the most basic type of business, where there is no distinction between your personal finances and those of your business. Every year you pay your tax and National Insurance via a Self Assessment Tax Return. You will also be personally responsible for any liabilities that your business has.
- Partnership – this is very similar to a sole trader relationship, but where two or more people decide to share the profits/losses, plus any responsibilities and debts. Each partner then pays tax on their share via Self Assessment.
- Limited Liability Partnership – An LLP is similar to a partnership, but the liability of each partner is limited to the amount they invest in the business. Each partner then pays tax via Self Assessment.
- Limited Company – a privately managed business which is owned by shareholders and run by directors. A limited company is a completely separate legal entity and so its finances are completely separate to those of its owners. Any profits are retained and are subject to Corporation Tax, after which dividends can be distributed to shareholders. There are also various reporting obligations.
When you’re starting a business, choosing the right company structure is a very important one. The right choice can be dependent on your circumstances, industry, funding and growth aspirations. Therefore, it can be very helpful to talk things through with an accountant or small business adviser before you get started. Otherwise, this guide from Companies House is also useful.
You can’t build a great building on weak foundations.
The right mindset for starting a small business
Once you’ve established the initial foundations for starting your business, you need to make sure that your mindset is in the right place. You’re heading towards a roller coaster – it’s true. So it’s vital that your mindset is able to act as your seatbelt as you prepare for, and set off on, the journey. We see so many small business owners who allow the mind monkeys to creep in and shake them up. But by getting control of your mindset, you can keep them at bay.
We touched on the fact that overarching failure is, statistically, a real possibility when you’re starting a small business. But regardless of whether your business is ultimately successful or not, there will be some ‘failures’ along the way.
But the key thing when it comes to mindset is how we deal with those failures. Will you, for example, give up when something goes wrong? Or at the very least, will you allow your perceived failure to dent your confidence and hold you back? Instead, how about telling yourself that there’s no such thing as failure? Instead, take each negative experience – each ‘failure’ – as an opportunity to learn. That way, you’re still moving forward, instead of dwelling on what’s gone by.
Another important aspect of a small business mindset is your attitude to learning, because none possess all the skills we need to succeed. If you’re not willing to learn, you’re likely to stagnate, and miss out on important opportunities. Conversely, when you’re open to learning new things, you will flourish and thrive – and the benefits will be felt with your business too!
So be open to learning from books and online, from experts and trainers. And be open to learning from people that are already some way down the road to small business success. Invest in your self-development. You don’t have to do exactly what people tell you, but that doesn’t mean they aren’t an excellent source of knowledge and experience. You can still learn from them.
Confidence and Imposter Syndrome
The data is a few years old now, but when it was published in 2019, research by NatWest found that Imposter Syndrome put 60% of women off starting a business. And for many of those that do start a small business, Imposter Syndrome remains a real challenge.
This makes it even more vital to control the mind monkeys, build your confidence and venture outside of that comfort zone! The good news though, is that there are definitely ways to get comfortable with being uncomfortable, and quiet that Imposter Syndrome! Including making sure you have a great support team around you.
Whether you think you can, or you think you can’t, you’re right.
Once your foundations and your mindset are established, the next big step in starting a small business is your business plan. Something that strikes fear into even the most diligent and committed of us. You might also question whether you need one in the first place.
But in reality, they are incredibly valuable. Not only do they keep you on track, but research shows that those businesses with a strategic plan will move forward faster, and have a higher chance of success in the long term. They also provide other people with confidence in your business. This is particularly vital if, for example, you’re looking for external funding to support your growth and development.
In this section, we explore what should be contained in your business plan in a little more detail. You can also learn more by attending our monthly Small Business Toolkit workshop.
What should be in your business plan?
When you’re first starting a business, your first instinct might be that your business plan should be a lengthy tome. But that even if you took time to write one, it would probably end up gathering dust on a shelf. Actually though, it’s really important to produce a plan that works for you. For example if you have no intention of seeking finance, you don’t need to produce a business plan with this in mind.
That said, regardless of the format of your plan, you should still consider including the following things:
- Mission and vision
- 1, 3 and 5 year goals
- Market research
- Marketing plan
- Resource requirements
- Finances and projections
- Any other requirements or considerations relevant to your business
As we mention above, it’s also really important to make sure that your plan is, and remains, a useful document. From the day you decide you’re starting a business, your plan is your roadmap to success. Then, like any good map, you need to check in with it every time you reach a new milestone, and use it to navigate around any obstacles.
So once you’ve completed your first plan, diarise time to revisit it. At Tabono we are big fans of planning and encourage all of our clients to plan on a weekly, monthly, quarterly and annual basis. For the big goals – your 1, 3 and 5 year plans – work backwards. Start with your major goal, and work backwards, breaking it down into quarterly chunks. Then break those quarterly chunks down further into smaller, more manageable tasks.
That way, your ‘big’ business plan becomes a useful document, and the ‘big’ goals become far less daunting and more manageable.
Nevertheless, even the most detailed of business plans isn’t of much use without the numbers to back it up. If you don’t know your numbers, how will you know how well you’re doing? How will you know when you can afford things and when you’re likely to see a strong ROI? And most importantly, how will you be able to diagnose and pre-empt problems in your business, ideally before they happen? Also, if you’re just starting a business, how are you going to pay for all of your start up costs?
Personal Survival Budget
The best place to start is by developing a Personal Survival Budget. Also known as – how much money do you need to make in a month, in order to survive and pay your bills? This is the part where you go through your bank statements and make a big list. Think about the things you have to pay – your mortgage, your utilities and so on. The non-negotiables – not holidays and other luxuries. The total that you come up with is the amount that you need your business to generate in order for you – the owner – to ‘survive’.
What should I charge my customers?
Once you’ve worked out the minimum amount of money that you need to make, you need to calculate how much money you’re going to charge your customers. You need a pricing strategy. There are a number of ways to do this:
- Value-based pricing – charge your customers what they think your services or products are worth
- Competitive pricing – find out what your competitors are charging, and follow suit
- Cost-plus – the cost of production, plus a percentage on top
- Penetration – charge an initial low price with the hope of a high volume of sales, and then increase it later
- Economy – cheaper, designed to generate high volumes of sale
- Dynamic – where pricing changes with demand
There are some pricing models that are more appropriate for certain industries. Therefore it’s important to do your research to establish which is the best for you. You can read more about how to do this here.
Whatever you choose though, think about the message that your pricing is giving to your customers. Also, whether your price and your product/service are saying the same thing. For example, one would assume that a high price portrays a high quality product, and likewise, for a lower quality product, one would expect a cheaper price. And, of course, does the price actually convince your customer to buy?
You also need to make sure that you charge what you’re worth!
This is the third stage – and this stage will form part of your business plan. Normally, we forecast for a year and essentially, you’re trying to predict what money is coming into and going out of your business, and how much is left over once all of your business bills and expenses are paid.
This not only tells us how your business is hopefully going to grow over the course of the 12 months, but when you compare it with your Personal Survival Budget, it shows you the point where you will hopefully be able to cover your personal bills.
It’s absolutely true that, when you do this for the first time, your Financial Forecast will be based at some level, on guesswork. But the key here is to make sure that you’re able to make educated guesses. If we have done the market research and customer and competitor analysis thoroughly as part of the business planning process, we should be able to make sensible assumptions upon which to base our projections. Then over time, as you gain more detailed data and experience, your projections should hopefully become more accurate.
Again, it’s really important to check in with your forecasts – we’d suggest at least once per month. If you map your actuals against your forecast, you’ll be able to know exactly how you’re getting on at any given time. Many types of accounting software will allow you to upload your forecast (Budget) and provide you with the comparison in real time.
How to finance your business
Once you’ve worked out how much money you need to pay your bills, and how much money you’re likely to make in a year, the next thing to think about is how you’re going to finance your business.
There are a number of ways to approach this:
- Self-funding/Bootstrapping – this is the most common way of starting a business, especially in the early days. Essentially you put your own money into the business to cover your start-up costs, and then you use the profits made to reinvest for growth. The benefit here is that you retain full control over your business.
- Start-Up Loans – these are government-backed loans of up to £25,000 per director, repayable over up to 5 years. You can read more about them here.
- Crowdfunding – where you raise smaller amounts of money from a larger number of investors.
- Small business loans – often from banks or similar institutions
- Business Angels – early stage investors who provide initial capital and often mentoring, usually in exchange for equity
- Incubators – business incubators focus on providing entrepreneurs with resources and support for rapid growth. Payment is usually in fees, although some also offer funding.
- Accelerators – accelerators are designed for fast growing businesses that are ready to scale.The provide seed funding in exchange for equity
- R&D Funding – often in the form of grants from organisations such as UKRI, and designed to support innovation and the introduction of new products and services
- Venture capital – a form of private equity financing for companies who have the potential for high growth
How to manage your business finances
Once you have established your financial resources and business plan, it’s important to establish good financial habits from the outset. That means putting in place practices that will allow you to manage your numbers effectively.
So, once you have your financial forecast, work out how you’re going to check in with that forecast. Monitor your income and expenditure on a monthly basis and make decisions based on the data that you’re presented with.
If you’re working on your own, and especially if you have plans for growth, it can also be really helpful to get a second opinion on the finance front. In our case, we work with an excellent Management Accountant, who not only looks after the paperwork, but also acts as an external strategic advisor, challenging both our assumptions and our numbers.
Another vital part of starting a business is how you’re going to get your message out there. How are you actually going to reach your customers, and convince them to buy from you? There is a huge amount of literature available on the marketing mix, and it’s true that there are many things to think about, ranging from your elevator pitch and your brand to your website, SEO, social media and PR! So where do you start?
So what makes up your business brand? Well, it’s essentially the image you want to present to the world. In simple terms, your identity. This includes:
- Your mission and your values
- Your tone of voice
- What you offer to your customer, and what they can expect from your business
- How you want your customers to feel
- How you communicate with your staff and your customers
All of these things then translate into your visual brand. Your colour palette. Your logo and website. Everything that goes into making your brand recognisable. And all of these things should be a representation of the points above.
So at this point, take some time to think about what and who you want your business to ‘be’. For example, do you want to be something of a disruptor? Family friendly? Inclusive? What about knowledgeable? Professional? Cutting edge?
Then of course, there’s you. The business owner.
As business coaches, we often see women who try to ignore this bit, as a result of a lack of confidence, or the dreaded Imposter Syndrome. But actually, understanding your own personal brand is a crucial part of your overall strategy. Why? Because people buy from people. You might have the greatest product in the world, but you, the business owner, also need to be consistent with your brand. If you’re selling something bright and family friendly, but you turn up for meetings in a dark-coloured, formal suit, there’s a clear mismatch there!
The key then becomes to ensure consistency between all of the aspects above. Know your hex codes for your brand colours, and use them rather than guessing. If your brand is relaxed and informal, own it and don’t be pressured into trying to fit in with the approaches of others. Be true to yourself and true to your values – they are what makes you unique, after all!
Always stay true to yourself and never let what somebody else says distract you from your goals.
Get to know your ideal customer
This is absolutely fundamental. If you don’t know your ideal customer on a detailed level (and we’re talking much more detail than just gender, age and location), then you may as well just throw random messages into the world and hope one sticks. And the chances of that happening are not high.
So early on in your business journey (and as part of your business plan), we’d really recommend developing a set of customer profiles. These profiles could include things like:
- Demographic – gender? Age? Location?
- Family status – are they married? With children? Do they own their own home?
- Hobbies and interests – how do they spend their time? And what does this tell you about them?
- Work – do they work? In what kind of role? What’s their working pattern? Their salary?
- Financial situation – where are they likely to shop? Do they have disposable income?
- Marketing preferences – what social media channels do they use and when are they likely to be online? What kind of content are they likely to respond to?
Most importantly, how can you add value to their lives, and provide them with content that is useful, interesting or entertaining? In simple terms, why would they want to hear from you (and equally, what would turn them off)? Remember – we should always focus on what our customers want to hear, rather than what we might want to tell them.
A similar approach applies if you’re working on a B2B basis. How do individuals within your target customer organisation consume marketing messages? Who are the decision makers? What’s the best route ‘in’ and how should you approach it?
Then once you’ve done your research, it’s important to nurture your customers and your relationships. Nobody wants to find themselves repeating the same old messages if your customers have already moved on to the next big thing. So check in with your profiles on a regular basis – at least once or twice a year. Make sure your social media analytics and your Google Analytics data matches the assumptions you’ve made. Check in with existing customers through review requests and surveys. The aim being that you always know what makes your customers tick, makes sure they remain loyal to you and your brand, and shout about you from the rooftops!
Once you know who you’re talking you, you need to figure out how to explain what you do. And the first step of this is your elevator pitch. This is the one where you’re in a lift and someone asks you “What do you do?”, and you have about 30 seconds to answer in a clear, concise and compelling way.
This is so important, as your elevator pitch acts as a ‘hook’ to get people interested in who you are and what you do. A good elevator pitch allows you to seize opportunities (think about that potential investor you randomly met in the lift) and also introduce yourself to new people in a way that makes them want to know more about you!
In both cases, the idea of delivering your pitch can be terrifying – and it’s all too easy to find ourselves waffling while the other person smiles and nods politely. But actually, if you follow a formula (and actually work on crafting your pitch in advance rather than freestyling!), it becomes a lot more manageable. You can read more about exactly this here.
The marketing mix
Once you’ve established who you’re talking to and how to talk to them, the next step is to select the right channels, and start to plan and deliver content that speaks to them. Remember – the key is not what you want to tell them, it’s about what your audience want to hear.
Examples to consider include:
- Social media – which are the correct channels for you, and how are you going to use them?
- Advertising – on- and offline
- Website – is your website fit for purpose? Does it convey your message correctly, and is it easy for people to navigate and find the information they need?
- SEO – what are people searching for when they’re looking for businesses like yours? And how are you going to make sure that your business is findable, and stands out from the crowd?
We’ve talked about finance and planning. We’ve talked about brand and marketing. But what about people? Regardless of whether you’re planning to work completely on your own or grow a team, people are absolutely fundamental to the success of your business. This is true both in terms of the operation of your business, but also in terms of its potential for growth. People buy from people, after all! Having the right people around you as you set out on the journey to start a small business is absolutely crucial.
In this section, we give you an introduction to the kinds of people you need in your support team, and if you want us to, you can also include us!
The Business Owner
The first person we need to consider is you – the business owner! As easy as it might be to hide behind your products or services, you are your business. Your customers want to know who they’re dealing with. What your skills and expertise is. What kind of person you are and what kind of service you’re likely to provide. Whether you like it or not, your personal brand is a fundamental part of your business brand. And it’s fundamental from the very day you choose to start a business.
So take some time to think about what you stand for and how you present both yourself and your business to your potential customers. They need to feel that you embody the same values as the business brand that you’re trying to create. That you believe in yourself and your business. That they can entrust you with their custom!
Your support team
As small business owners, many of us work on our own – which can make the entrepreneurial experience even more challenging. You don’t always have people there to be your cheerleaders and to pick you up when you’re down. It’s hard to know who you can ask when you have questions. There’s nobody to bounce ideas around with.
So who do you need in your team?
- Friends and family – you need people at home who are bought into your small business dream and who are there to support you. This is especially true when it comes to your household commitments like bills, and the lifestyle that you and your family are looking for. But tread carefully here. It’s also possible that some of your friends and family, albeit with the best of intentions, tell you to play it safe and not chase your business dream. It’s ok to choose how much of your business you share with those who are more cautious. They just want to protect, which is expected, but for you to protect yourself, you need more of the people who want to encourage you and cheer you on.
- Subject-matter experts – it’s absolutely true that none of us have the expertise we need to run our businesses in all areas. For example, we might have no experience of social media marketing or finance management. Or we might need specialist input into something like a legal contract. Either way, outsourcing, or engaging specialist advice, can be hugely beneficial.
- Coaching or mentoring – by the same token, a business coach or mentor can also be incredibly helpful whether you’re starting out in business for the first time, looking for support with a particular challenge, or putting plans in place to take your business to the next level. Equally, a life coach (who specialises in supporting entrepreneurs) can also be incredibly helpful for those who struggle with their mindset, confidence or productivity.
Your broader Network
This section is an extension of the above, really! Networking is an important tool when it comes to growing your business, and your reputation as a business owner! As you get to know more people, aving a strong network enhances your standing within the small business community. The people you meet can provide you with invaluable advice and experience, as well as making introductions for you to both collaborators and customers. Members may also, of course, become your customers themselves.
Some networks take a ‘selective’ approach, where attendance is restricted to a single member of each profession or industry. Others have certain requirements in terms of actively referring business to other members.
There are also networks which aren’t really networks at all – in the traditional sense, at least. For example, we wouldn’t describe ourselves as a ‘networking group’. Yes, we do networking, but our emphasis is on mutual support in the holistic sense, rather than taking a referral/sales-driven approach.
Whichever approach works better for you though, your broader network will become a crucial part of growing your business. Take some time to invest in developing it and nurturing your contacts – you never know who you might meet, and when you might need them!
But be selective. Just like when it comes to your social media following, it’s much better to have QUALITY than QUANTITY.
The final section of this guide to starting a small business relates to how you actually manage your business. You might have the greatest idea in the world, but if you don’t have the strategies, structures and processes in place to make things happen, your business will never reach its full potential.
Strategy and Goals
This links back to your original business plan, as mentioned earlier. But this section is about how you’re going to deliver your goals. You still might be thinking that those 3 and 5 year goals are still way too far away, and in a way that’s true. But if you don’t put plans and milestones in place to work towards those goals from now, you’ll find that the goalposts move all too easily. Procrastination creeps in, and all of a sudden, you’re 18 months in and you’re still working towards your goals from last year.
So take your big goals, and work backwards. For example, even if you know you need a website, writing ‘get a website’ as your goal can feel too big and overwhelming. So break it down. If you know you need it to be finished in two months time, what do you need to do to achieve that? And all of a sudden, rather than having tasks like ‘sort the website’, you start to see things like ‘contact the web developer’ and ‘write copy for home page’. Not only are these more manageable and less daunting, but they also make sure that you are thorough in your approach and ensure that nothing is missed. They also give you a much greater sense of achievement as you tick them off the list.
Structures and processes
This point is about all the things that make your business ‘work’. It’s about how you plan your week. Making sure you have time to work both on your business as well as in it. It’s about how you handle your invoices and receipts. How you follow up potential leads. Seek reviews from those that have already made a purchase. Taking the time to put defined processes in place for the many different tasks that relate to running your business will make your life far more straightforward in the long run!
The final point here relates to what we mention above about how lonely it can be when you run a small business on your own. If you’re the only one working in your business, who makes sure that you stay on track? Get things done? Or make the right decisions?
This is where accountability comes in.
Even if you work on your own, there are lots of ways to achieve this. For example,
- Coworking – go somewhere, like our pop-up events or a permanent co-working space, and work with people. You will find that just being around other business people makes you a lot more productive, but at our events we take this a stage further. At the beginning of each session, we ask attendees to commit to whatever they are hoping to achieve, and then check in with them at the end to see how they got on.
- Coaching – if you work with a coach, ourselves included, you will know that they will ask you to commit to your goals and then keep them informed of progress.
- A ‘Board’ – this one might seem a little extreme if you run a very small business, but it’s still an incredibly useful structure. Find someone who’s willing to support you in your business and ask if they would be willing to meet with you on a monthly basis to help you check in with things, challenge you if needed and help you make decisions.
To bring us back to exactly where we started in this guide, the decision to start a small business is a huge one. There will be huge highs and huge lows, but it can be a truly life-changing journey. So before you dive in, why not take some time to talk to others about their experiences? You can find a number of real-life small business stories on our blog.
You can also, of course, talk to us! There are few options available for you if you’d like to find out more about how we can support you and your business. You could either book a completely free, 15 minute Discovery Call, or if you’d prefer, you can sign up for a free, month-long trial of our membership community. Either way, get in touch – we’d love to meet you!