How to start a business

Identifying what makes your business distinctive is an important early step when starting out. Your unique selling point (USP) may be an innovative product or service, or simply a more effective way of meeting customers’ needs.

You might be a beautician offering a modern approach to established treatments, or a coffee shop owner introducing carefully sourced blends. Whatever your area of expertise, defining your niche can help you position your business clearly and communicate the value you offer.

As part of our ‘Small Business Stories’ series, It’s Nice That co-founder Alex Bec shares how you can find your niche. He suggests: 

• Taking an honest look at what you enjoy and what you find fulfilling. 
• Considering what audience needs you’re solving. 

Watch the full video here.

A business plan outlines what your company does, how it operates, and how you expect it to develop. Some business plans are detailed documents used to engage lenders or investors. Others take a more streamlined approach. Business expert Bernard Marr’s ‘SMART Strategy Board’ is just one example. 

It includes: 

• Purpose panel – your company’s purpose (mission statement) and long-term aims (vision statement). 
• Customer panel – your target market and what you intend to offer. 
• Finance panel – financial goals, such as profit and efficiency target, and your business model. 
• Operations panel – partners, suppliers, distributors, and processes that support your work. 
• Resource panel – IT systems, infrastructure, data, people, and skills you will rely on. 
• Competition and risk panel – potential competitors and risks to keep in mind. 

SMART is designed to help you understand your strategic goals and priorities. Creating a clear plan can provide structure and direction for your business, as well as support conversations with potential investors or partners.

Explore the SMART strategy board.

The cost of setting up a business varies depending on the type of work you do and how you operate. Some businesses can begin with relatively low investment, while others may require more substantial resources. For example: 

• Service-based businesses, such as cleaning, design, or consulting, may only need equipment, insurance, and marketing materials. 
• Product-based businesses often require funding for stock, manufacturing, or storage. 
• Online businesses may reduce location costs but might invest more in software, web development, or advertising.

Typical start-up costs can include: 

• Registration and licences 
• Insurance (such as public liability or professional indemnity) 
• Website setup and digital tools 
• Marketing and branding 
• Equipment or materials 
• Rent or workspace costs 

Preparing a detailed budget can help you plan for ongoing expenses and set aside funds for any unexpected costs during your first year.

There are several ways to fund a business, depending on your goals and financial circumstances. 

• Personal savings – a straightforward option, though it’s worth considering the impact of using all your savings. You may want to keep some funds in reserve for personal needs. 
• Grants – local or national schemes may offer non-repayable funding. Visit GOV.UK (external link) to learn more about what options may be available to you. 
• Small business loans – banks and online lenders may offer start-up loans with agreed repayment terms. Read our small business loans guide for more information. 
• Seed investment or angel investors – may be appropriate for businesses with strong growth potential. They usually require equity in exchange for capital. 
• Crowdfunding – platforms such as Crowdcube or Kickstarter can help you raise funds from members of the public.

When you’re exploring how to start a small business in the UK, company structures, tax, and registration may not be the first things you consider. However, they're important for laying the foundations for your business.

There are three main routes to setting up a business (external link), each with different responsibilities and levels of flexibility. The structure you choose influences how you report income and pay tax: 

• Sole trader – You run the business as an individual and keep any profits after tax. Sole traders register with HM Revenue & Customs (HMRC) for Self Assessment and pay income tax and National Insurance. This is usually simple to set up, but you’re personally liable for debts. 
• Limited company – A limited company is a separate legal entity. Registration is completed through Companies House, and companies pay corporation tax and file annual accounts. 
• Partnership – Two or more people share profits, but they can also be held personally liable for any financial debts or losses. Each partner completes their own tax return and pays tax on their share of the profits.

The VAT registration threshold for 2025-26 is £90,000 in taxable turnover within a rolling 12-month period.

Hiring employees can support your business's growth, but it also involves legal and administrative steps. 

If you’re employing someone for the first time, the process typically includes: 

• Registering as an employer with HMRC before their first payday. 
• Checking right-to-work documents for all employees. 
• Providing the principal statement on their first day of employment and written terms of employment within two months of their start date. Read our guide on the different types of employment contracts to learn more. 
• Setting up PAYE to handle income tax and National Insurance. 
• Paying at least the National Minimum Wage or National Living Wage and providing statutory entitlements.
• Arranging employers’ liability insurance, which is a legal requirement for most businesses.

Understanding the regulations that apply to your business can help you operate with confidence and reduce potential risks. Key areas often include: 

• Employers’ liability insurance – required if you employ staff. 
• Health and safety – maintaining a safe environment for employees, customers and visitors. 
• Data protection (UK GDPR) – handling personal data responsibly and securely. 
• Fair trading laws – ensuring advertising and sales information is accurate. 
• Licences and permits – some sectors, such as food services or childcare, require specific authorisation.

Under the Employer’s Liability (Compulsory Insurance) Act 1969 (external link), businesses that employ staff are required to hold employers’ liability insurance. The minimum level of cover is £5 million, and the policy must be provided by an authorised insurer. 

This insurance can help cover compensation costs if an employee becomes ill or injured in connection with their work. Businesses that operate without valid cover can face fines, including up to £2,500 per day they are uninsured.

The Data Protection Act 2018 (external link) and UK GDPR set out how personal information should be collected, stored and used. Key principles include: 

• Collecting only the data needed for your operations. 
• Storing information securely. 
• Being transparent about how data is used. 
• Respecting individuals’ rights regarding access, correction and removal of their data. 

The Information Commissioner’s Office (ICO) (external link) offers more information on data protection responsibilities and good practice.

Marketing can help you reach potential customers and establish your place in the market. Approaches may include:

• Social media – sharing updates and engaging with audiences on platforms such as Instagram, Facebook and LinkedIn. 
• SEO (Search Engine Optimisation) – improving website content to appear for relevant search terms. 
• Content marketing – using blogs, videos or newsletters to demonstrate expertise. 
• Customer experience – focusing on clear communication and straightforward interactions, from enquiry to purchase.

Cash flow reflects how money moves in and out of your business. It provides an overview of financial health and can highlight when adjustments might be needed. 

• A positive cash flow indicates that income is greater than expenses. 
• A negative cash flow indicates that outgoings exceed revenue.¹ (external link) 

Cash flow is often divided into: 

• Operating cash flow – day-to-day trading income and expenses. 
• Investing cash flow – spending on long-term assets or investments. 
• Financing cash flow – borrowing, equity or dividend payments.² (external link)

Cash flow forecasting can help you anticipate future trends, plan for quieter periods and support resource management.

If income varies throughout the year, developing financial resilience can support long-term stability. This may involve setting aside funds during busy periods, widening income sources, or reviewing contracts and supplier arrangements. 

These approaches can help businesses navigate changes in demand or broader economic conditions.

Running a business usually involves risk. Insurance can help protect your operations from unforeseen events that may affect your work or finances. 

Common types of business insurance include: 

• Employers’ liability insurance – required if you employ staff.³ (external link) 
• Professional indemnity insurance – may be relevant if a client claims you have made a negligent error or provided inaccurate advice. 
• Public liability insurance – covers claims from customers or members of the public relating to injury or property damage associated with your work. 

Some types of insurance are required by law, while others provide additional protection depending on the nature of your business.