Thinking about setting up an online business in the UK? There’s never been a better time to do it. While Covid-19 caused mass business closures, it also gave people the opportunity to start an online business while stuck at home. In fact, 85,000 online companies started during lockdown.
But if you’re looking to set up an online business in the UK, it can be daunting working out everything you need to do. How do you register your business? What do you include in a business plan? And what are the best ways to market your new company?
This guide will walk you through every step involved in setting up an online business in the UK. So whether you’re just starting or you’ve been running a business for a while, this guide has something for you.
What Is an Online Business?
An online business is pretty much what it says on the tin. It’s a company that conducts business entirely online rather than in a physical location. While many companies have a shopfront or premises alongside an online store, online companies are purely internet-based.
Over the last decade or so, the number of online businesses has increased exponentially. This is due to increased consumer demand. In 2020, the number of digital shoppers reached two billion, roughly a quarter of the world’s population. Despite support for local businesses, Nasdaq predicts that by 2040 consumers will make over 90% of their purchases online.
Benefits of an Online Business
Access to Market
Creating an online business gives you unrivalled access to the market. Whether you use your own website or online marketplaces like eBay and Amazon, you can set up a business quickly and access potential customers around the world.
Lower Overheads
By only selling online, you remove the need for retail premises and do away with the need for customer-facing staff altogether. Eliminating these costs allows you to invest in better products and marketing and improve your small business.
Rapid Growth
While a traditional business relies on foot traffic and word of mouth, an online business doesn’t have these constraints. With good products and a well-researched digital marketing strategy, you can grow your business quickly.
Potential Downsides of Running a Business Online
Security and Fraud
As online businesses are rapidly growing, cybercriminals are looking to target these businesses. If you sell online, you’ll need to ensure that you have the latest security systems in place to deter criminals. Failing to protect your online business can be fatal for your finances and customer trust.
Legal Issues
As a business owner, you’ll be responsible for ensuring that your online business is legally up to date. Online sales have different laws that you’ll need to be aware of and compliant with. Failing to keep up with things like General Data Protection Regulation (GDPR) can result in hefty fines and loss of income.
Trust
Consumers are naturally wary of anybody online who isn’t a trusted brand. With no physical location, your potential customers will need convincing your business is genuine and not a scam. This is less of a problem once you’ve established your business but can be challenging at the start.
Types of Online Business
Millions of people worldwide are making money online. E-commerce is undoubtedly the most popular form of online business, and the UK has the most advanced e-commerce market in Europe. But while e-commerce makes up a large proportion of the market, there are many different companies you can start with just a computer and an internet connection. If you’re eager to start making money online and e-commerce isn’t quite right for you, here are just a few of the other routes you can take:
- Writing and blogging — If you’re a skilled wordsmith, tons of businesses out there need your help. You can sell your writing skills as a service or find a blogging niche and make money through advertising, sponsored posts and affiliate marketing.
- App development — Got a great idea for a new app? Designing apps is not easy, but developing apps is a great way to make money online if you’ve got the skills (or the time to learn the skills). Plus, apps are getting easier to design with easy-to-use software.
- Graphic design — If you’re a dab hand at design, there are endless possibilities to make money online. You can sell your services to businesses, or you can design art prints, t-shirts and all sorts of other products that you can sell through marketplaces like Redbubble.
One of the reasons that so many people are starting an online store or business is that there are very few passions, hobbies and skills you can’t turn into successful business ideas. The only thing that stops a lot of people is a lack of know-how.
Seven Steps to Start an Online Business
Starting an online business isn’t all that different from creating a traditional brick and mortar business, but it involves a few different steps. At Mint Formations, we’ve helped thousands of people get their entrepreneurial dreams off the ground and here are our seven steps to success:
Step 1: Business Idea
As the saying goes, one great idea can change the world. At this stage on your entrepreneurial journey, you’re just searching for an idea that will change your world; the rest can come later. If you’re already thinking about starting your own online business, then it’s pretty likely that you’ve got an idea — or a couple of business ideas in mind.
If you haven’t, it’s good to keep things simple. Focus on what you’re passionate about or particularly good at. With that in mind, assess whether you think there’s a demand for it or a gap in the market or how you can adapt your skills to the demand. Try to think about growing trends and how you could capitalise on them. In-depth market research will come later; you are just looking for potential business ideas at this stage.
Try to put together multiple potential ideas so that you’re not back to square one if any of them don’t pan out. Look at different angles for each concept, as this can help you find your niche and target audience.
Once you’ve got your ideas, ask your family and close friends for their opinion. Sometimes being too close to the situation can blind you from potentially huge opportunities or flaws in your business idea. Ensure that whoever you ask will give you honest feedback and not sugarcoat any criticism.
Struggling for ideas? Read our article on small business ideas that are perfect for everyone.
Step 2: Market Research
After finding your potential business ideas, you need to deep dive into market research. Market research is essential for finding potential customers and your target audience. This is a crucial step as it will show you whether or not your business idea is feasible and give you an idea of your scope for success.
When you start to conduct market research, it can be a bit daunting, and it’s easy not to have a clue where to start. One of the best ways to do this is to look at statistics and reports about similar products or services to those you plan to sell. Many organisations and companies publish documents and information about market trends which you can analyse.
Alongside this, you can carry out competitor research. Start by making a list of companies that sell the same services or products you plan to and look into each of them individually. Study how well their companies are doing by checking their financials on Companies House and by checking their web and social media presence. From this research, you should see what your competitors are doing well and find ways to improve it. You’ll also spot areas they’re failing in and find ways to beat your competitors.
Another way to find your target customers and potential audience is to conduct online surveys. These are relatively easy to set up with a survey service provider or Google Forms. If you choose to carry out a survey, get as many responses as possible. The more answers you get, the more you know about your audience. Interviews and focus groups are also worth considering.
Step 3: Business Name
Choosing a business name may seem like one of the easiest steps in getting your business off the ground — it’s not. But luckily it’s one of the most enjoyable steps. Choosing the right business name can be massively rewarding for your branding and marketing. But choosing a bad name can doom your business from the very start.
Before you get started thinking about names, you should be aware of the rules for naming a company in the UK. While the rules for naming a business are slightly different for a limited company and a sole trader, it’s a good idea to follow the limited company rules to avoid rebranding if you incorporate them later. The rules are as follows:
- You must choose a unique name
- It cannot be too similar to an existing business or trademark
- Do not use offensive or sensitive language or words
- Your name shouldn’t imply any government endorsement.
Beyond those rules, you have relatively free reign to choose any name. Use a company name checker to see if the name is available throughout the process. You should also check to see if the web address for the name is available. You can do this by looking at web hosting sites like GoDaddy. If your company name is available, but the domain isn’t, we’d recommend trying to find a new company name.
Just as you came up with a list of potential business ideas, it’s worth making a list of business names. You should have a good idea of what works for your target audience from your industry research: maybe your competitors all have short, snappy names or the opposite. It’s good to use that as a yardstick unless you think your competitor’s are missing a trick.
While you’re making your list of potential business names, bear the following in mind:
- Is the name easy to spell?
- Are you limiting your business by being too specific?
- Does a company with the same name already exist?
- Does it tell your customers what you do instantly?
Find the perfect name with our business name guide that’s full of handy tips, tricks and examples.
Step 4: Business Plan
With your business idea, name and market research complete, it’s time to bring it all together in a business plan. With your fully-realised business concept, you can build your blueprint for success. Your business plan is essentially your rulebook and plan for success; it maps out how you will run your business and how you’ll overcome obstacles.
Putting a business plan together can be a daunting task, and it takes some time to do it correctly. But it’s well worth the time, and almost all successful businesses have a business plan. In your business plan, you’ll need to include:
- Business structure — This outlines who are involved in the company and what they do.
- Products — This is a complete description of the products or services you provide.
- Company description — A definition of what your business does. It’s an executive summary of your business.
- Competitors — Who are you trying to beat? This is your plan to not only compete but beat your competition.
- Finances— How are you financing your business? This outlines how you will afford to start and run the business. This could be bank loans, government grants or personal savings.
- Budgeting — Most new businesses that fail do so due to a lack of budgeting. Set out your planned expenses in thorough detail to avoid going out of business needlessly.
Your business plan will also include your development timeline, business goals and marketing (more on that shortly) and anything else you think is necessary. Often entrepreneurs will spend hours labouring over making a formal business plan, but to start with, it can be as informal as you like — just stick to it. If you’re going to take the plan to investors, though, you’ll need to ensure it’s professional.
Read our guide to putting together an effective business plan.
Step 5: Registering Your Business
Regardless of what type of business you want to start, you’ll need to register it with HMRC and Companies House. Before you can register, you’ll need to choose a business model. Most UK companies either register as sole traders or limited companies.
- A sole trader is usually best for anyone starting a smaller business. Legally, there is no separation between the business owner and the company itself. This means that any profits or losses will affect the owner’s finances.
- Limited companies are separate legal entities to their directors and shareholders. By registering as a limited company, you can protect your personal finances and have limited liability for any business debts.
Once you’ve chosen your business model, you’ll need to register your business. The sole trader registration is far more straightforward, and you only need to register with HMRC. For a sole trader registration, you’ll just need your national insurance number, business name and personal address.
Registering a limited company is a little more complicated as you’ll need to register your business with Companies House and HMRC for tax. To register as a limited company, you’ll need to provide the following:
- UK registered business address
- Information on your director(s), shareholders and company secretary
- Your company Standard Industrial Classification of Economic Activities (SIC) code
- Your business’s prescribed particulars
- Your memorandum and articles of association
Although Companies House and HMRC make registering a business as simple as possible, it’s still a lengthy and confusing process. That’s why many new companies opt to use a company formations agent like Mint Formations. Company formations agents take the hassle out of your registration and allow you to focus on running your business.
Find out more about registering a small business or picking a formations agent to help.
Step 6: Setting up Your Online Store or Business Website
If you’re setting up your own online business, you’re probably going to need a website. You can choose to design your own website or use a third-party platform like eBay, Etsy, or Amazon if you’re planning to sell products. Both approaches have pros and cons, but ultimately, it will depend on your business goals. Third-party platforms give you access to millions of potential customers, but you pay for that privilege through fees on sales. Before deciding on which your business will use, review the needs of your business.
Many new businesses use a third-party platform when starting an online business to give them money and income to fund their own website. Whether you’re building an e-commerce store or selling services online, building a website takes time and having a revenue stream can help with startup costs.
The type of website you decide on will depend massively on your industry. An eCommerce website will be entirely different to a service-based business as internet users will have different intentions when visiting the site. Go back to your market research and look at competitors and other relevant websites to see the type of website you could design.
Once you have your vision of your website’s look, you can start to get it put in place. You can hire a web designer to do this or do it yourself. If you’ve not designed a website before, that’s no reason to be put off, as there are tonnes of easy-to-use web builders that have drag and drop tools. When you’re designing your website or putting together a brief for your web designer, consider:
- How your website will look — Your site needs to be appealing and match the brand image you want to convey.
- The logo and branding — Do the design elements of your site match up with what will appeal to your target audience?
- User experience — How can you ensure any site visitors have a smooth experience that leads to sales?
Check out our top seven web design tips for limited companies.
Step 7: Marketing
Marketing is one of the biggest challenges for new online businesses. Failing to have a solid digital marketing strategy is one of the reasons many new businesses don’t succeed. You may have the best products and a fantastic website, but you won’t reach your target market if your marketing efforts aren’t good enough. Here are just a few of the things you’ll need to consider for marketing:
- Search engine optimisation (SEO) — You need to keep search engines in mind when you’re building your website. Optimising your entire website for search engines is crucial for building web traffic as it affects your Google Rankings and drives customers to your site. After your site is built and optimised, you’ll need to continue your SEO efforts by creating content that drives traffic.
- Social media marketing — Your business’s social media pages can be a huge source of traffic and sales for your business. Before you start social media marketing, you’ll need to consider the best social media platforms for your business based on your target audience. Once you’ve decided on your platforms, you should develop a plan for the types of posts you’ll create, how they will stay on brand and where you’ll source imagery.
- Email marketing — Building an email list is one of the best ways to convert potential customers into clients. Email marketing is relatively straightforward to set up but difficult to do well. Often new businesses will overload their customers with business updates, news and offers that result in a low open rate, making your email efforts pointless. You’ll need to put together a plan and research online about best practices.
- Paid online advertising — Pay Per Click (PPC) advertising is one of the best ways to drive traffic and sales. You can create social media and Google Ads to appear in potential customers’ social media feeds and search results. It’s crucial to thoroughly research your market and customers before starting PPC advertising, as getting it wrong can be costly.
While marketing your business might seem like a lot of work, it can be a lot of fun too. You can experiment with different approaches until you find the perfect strategy. The majority of web hosts now have plugins that help with marketing too. For example, WordPress has Yoast, a free marketing tool for SEO. Plus, there are many articles, podcasts, and tutorials online about digital marketing that will help you get up to speed.
Ready to Start Your Own Online Business?
Starting a new business can seem like a daunting prospect, but don’t be put off by the amount you need to do. Last year saw more new businesses than ever, which means you can do it too. Plus, there is plenty of help available.
At Mint Formations, we help thousands of people start their businesses every year. We take the hassle out of registering a new company so you can focus on what’s important — your business.
Register your business with Mint Formations today. Our company formations packages make registering your online business quick and easy. For more information, get in touch with us today.
