There are a lot of perks to owning a business: you have the freedom to decide when and where you want to work, unlimited learning opportunities, financial rewards, and being able to put your skills to use by implementing your own ideas.
That’s not to say there aren’t any risks involved, because starting a business is extremely time-consuming, creates a lot of stress for business owners (e.g. worrying about competitors, employees, bills, and customer issues), and there is no guaranteed income. Some might even have to use most of their savings in order to fund their startup.
You may be at a point where starting a business is worth the risk and aligns with your values.
However, you might be feeling a little overwhelmed with the actual logistics of starting a small business.
In order to be successful, you need to lay the groundwork and figure out the type of business you want to start, the legal structure, and the business model. Once you have done that, of course, then you need to draft a business plan.
We’ve done some of the work for you to help you get started. Let’s dive into how to start a small home-based business in five steps!
1. Clearly define your business
Nowadays, there are so many different types of businesses (thanks to technology) — an abundance of opportunities is at your fingertips.
When you’re in the development stage of figuring out your business, it’s important to establish clarity regarding what you’ll actually be doing. Ultimately, the success of your business is dependent on the success of the service or product you’re selling.
Think about your skills, where there’s a gap or need in the market by conducting a competitor analysis in order to find the value you’ll be providing.
You could run an online business by selling homemade products, or you could run a service-based business and be a freelance writer, run a consulting business, or even a personal training business.
While you’re getting clear on your business, you will also need to be clear on who your target audience is. Think about what life stage your potential customers are at (e.g. recent graduate, new mom, retired), what goal they want to achieve (e.g. lose weight, pivot careers, upgrade their style), and their demographics (e.g. where they live, age, socioeconomic status).
2. Draft a business plan
When it comes to creating a business plan, there is no single best approach and no one size fits all business plan template because every business is unique and every situation that you’ll face as a business owner will be different.
That’s where an accountant comes in handy; they will help create credible revenue forecasts, assist with business budgeting like business expenses, variable expenses, and fixed costs as well as improve your overall business plan.
Another reason why drafting a business plan is important is to attract potential investors or to secure a business loan. You need to know what you’re working with and what your financial projections are to reach your business goals.
If you’re seeking early-stage financing, a business plan can also include cash flow and financial forecasts to champion your efforts.
On top of that, a good business plan will help you hone in on your business structure. This is important if you need to hire employees and narrow in on any pain points or challenges you might come across.
A business plan will also help you plan ahead to achieve your goals such as both short-term and long-term objectives. Ultimately, it’s a roadmap to help you turn your business idea into a reality.
3. Take (legal) action
Once you have a clear picture of your home-based business, it’s time to take some (legal) action! You need to decide on your business structure, because that will impact any legal requirements, such as: the amount of tax you pay, your degree of personal liability, and how much paperwork will be required.
In the UK, these are the four main types of business structures and each has its own tax and liability involvement:
- Sole trader (also known as sole proprietorship): you are a self-employed sole proprietor and you must register your business with Her Majesty’s Revenue and Customs (HMRC). You are entitled to keep all of the profits you earn as income but you’ll be required to pay tax and national insurance.
- Partnership: this is when your business involves two or more people who share the costs, benefits, risks and responsibilities of the company. This type of business entity is unincorporated (each is personally liable for the debts of the business).
- Limited liability partnership (LLP): similar to a partnership, an LLP can be incorporated and include two or more members (individual or company) and their liability is set to the amount of money they invested in the company. An LLP agreement determines how much responsibility members take on in terms of profits and losses.
- Limited liability company: this is a privately managed business and is legally separate from its owners (typically shareholders) and managers. This type of legal entity must be incorporated at Companies House.
Another step you want to take is to purchase business insurance. Business insurance helps to protect your financial assets, physical locations, intellectual property and even any losses incurred. There are different types of business insurance depending on your needs but overall it’s to cover your business from risks.
In addition to an accountant, consider starting a relationship with a business lawyer. They’ll be able to help you register your business and guide you through any other legal requirements.
4. Figure out your finances
All new business owners, even ones running their business from home, have startup costs in the development stage before they can even start operating and become profitable.
These costs can include storage, tools, office supplies, equipment, website design, and graphics, among other things. It takes time to build customer loyalty and establish a regular cash flow. That’s why it’s important to establish your financial health at the beginning.
Let’s face it, you’ll need money to get through the initial startup phase until your business is bringing in consistent earnings to cover day-to-day expenses, whether it’s fixed costs or variable expenses.
To set you up for success you’ll want to keep business finances separate from personal ones. For example, open up a business account and business credit card that is separate from your personal ones.
Also consider creating more than one source of income, and consider various ways you can fund your business.
5. Measure your progress
Even before you launch your business, you’ll want to monitor your progress against your plan. Why? To ensure you’re on track, and to see where your business can improve.
Let’s say you’re selling homemade beauty products: you can get 10-12 individuals to test out your product to give you feedback. This will allow you to improve your product and help you to provide the best customer service.
You’ll also be able to make sure that you’re hitting certain goals, like having a marketing strategy in place, taking great photos of your product (especially if you’re an e-commerce business), establishing processes, knowing what your customers’ journey will look like, and much more.
On top of that, you can also see where you can level up your skills (e.g. marketing, customer relations, administrative duties).
Measuring progress before you launch your home-based business will be essential but so too will it be throughout all points of your business. You’ll want to look at business performance, annual revenue, and your customer experience.
When it comes to starting a business, there’s a lot to consider, from clearly defining what you’ll offer, drafting up a business plan to registering your business, figuring out the financial logistics, and measuring your progress along the way.
Get help early on
Don’t wait until your business is already up and running to seek help. Develop a concrete go to launch plan and understand how to get started by requesting a consultation right here from one of our London Chartered Accountants. Knowing what steps to take in order to run a profitable business is essential to set you up for success.