Are you thinking about setting up your own business this year, but confused about the details? Read on to find out the best locations to start a business, the types of business available to you, and the ways in which you could get the funds together.
Where to start
So many small businesses these days can be managed almost entirely online, with very infrequent travel, making your location pretty much irrelevant. But for those whose business ideas depend on the local community, here are some of the UK cities currently doing a great job of supporting startups:
- Aberdeen, ranked as the best place in the UK to start a business by Payment Sense’s rankings
- Sheffield, one of the densest networks of startups in the country, with strong access to seed funding to help foster local growth
- Cardiff, a long standing pioneer of innovation
- Cambridge, with its thriving tech sector ‘Silicon Fen’
- Liverpool, with a really strong 5 year survival rate for start-ups and an undeniable appeal
- Brighton & Hove, with a whopping 20% of its population described as self-employed
- Milton Keynes, the powerhouse of the Midlands, accounting for a huge amount of growth in recent years
- Leicester, with its consistently strong growth and its happy population (second in the country!)
- Manchester, our home town, that we just had to include in this list. Manchester and the surroundings are a great location for any new business – not only will you have quick access to the fantastic accounting services we offer to new businesses, you’ll benefit from a growing hive of Mancunian activity. Here are just some of the reasons that Manchester is a great start up destination
In contrast, London startups have the lowest 5 year survival rates in the country, as well as the highest start-up costs by quite a margin – so you’ll need a really sound business plan to take the plunge in the Big Smoke.
Which setup is right for you
Deciding what sort of business to set up is a key part of the process, and can be overwhelming for anyone who’s only ever worked as an employee. There are several options available to you, and they all have their pros and cons:
This is the best option if you’re going it alone. As a self-employed sole trader, you and your business are effectively one and the same. You can trade under your own name, or come up with a business name, but from a tax and legal perspective you’re personally responsible.
Things to know:
- It’s simple to set up and run your business as a sole trader
- You don’t need to register the business, so there’s a lot of privacy
- There are fewer financial restrictions than the other options, as your finances and your business’ finances are seen as one and the same
- All your profits will be classed as personal income, even if they aren’t put into your personal bank account as a salary would be
- You need to declare your profits annually through a self assessment tax return, and pay the right amount every year in January
- Your taxable income is calculated on a 6 April to 5 April basis, and you have the 31st of January as a deadline every year to complete and pay your tax return for the previous year
This is very similar to a sole trader, except that there is more than one owner. It works by all partners owning a percentage of the profits – they then pay tax on that percentage.
Things to know:
- As with being a sole trader, all profits are classed as personal income
- As a partner, you own a specified percentage of the profits and the liabilities (legal financial debts and obligations)
- Responsibilities are shared across the partnership, as is decision-making – this can be beneficial but also problematic if there are disagreements
- Partnerships are flexible internally – changes are quite easy to make, including changing the percentages owned by each partner
- For tax purposes, you act much like a sole trader, declaring your profits annually – a ‘nominated partner’ can register the partnership and complete the annual self-assessment tax return by 31 January each year
Limited liability partnership (LLP)
LLPs tend to be used by professional service firms – it is quite a unique way of blending the benefits of a partnership with the advantages of being an incorporated company.
Things to know:
- LLPs don’t usually pay corporation tax – instead, each member completes a self assessment tax return as a self-employed individual
- There’s a lot of flexibility internally, as there is with a conventional partnership – you can add and remove new partners more easily than in an LTD (as there are no shares)
- LLPs don’t have to register as an employer if the only people working for the business are partners (‘members’) – this can mean big national insurance savings
- Easier to make decisions than in an LTD because there are no requirements for general meetings or decisions by resolution
Limited company (LTD)
In a limited company, the business is a separate legal entity from you personally. It is owned and controlled by those who own its shares.
Things to know:
- There’s much less personal risk than in a partnership, as the business is a separate entity – its liabilities (debts) are not the personal responsibility of its owners
- You can allocate shares to any number of people, or sell them to raise funds – those people then have governing rights in the company, as they own a portion of it
- You can be tax efficient, as income is available in the form of both salary and dividends
- The business needs to be registered with Companies House, annual accounts need filing and an annual corporation tax return (you will very likely need an accountant as an LTD)
If you’re still unsure about which option is right for you, talk to us – we’ve got years of experience helping people set up their own businesses and we can help you figure out the best solution for you.
How to finance your new business
It’s certainly not cheap to start your own business, but it’s possible to fund your dream in a number of different ways:
Small business loans are commonplace, and you’ll find options available at many banks. You’ll likely be paying the loan back in monthly installments, by direct debit, to keep it manageable.
The government offer unsecured personal loans to new businesses, ranging from £500 to £25,000. They charge a fixed interest rate of 6% and can be paid back over 1 to 5 years. These loans come with a lot of additional support and guidance, including 12 months of free mentoring – see the Start Up Loan website for more information.
You may have personal savings that you can use for equipment or to fund your first few months as you transition into self-employment. However do be aware that using your personal savings to finance a new business could put you at risk if the business is not a success.
Another option is to find investors. These can take many forms, from family and friends to investment bankers and fund managers.
If you have people who are willing to fund you, you need to have a proper business plan in place, so that you know exactly how much you need, what it will be used for, when you think your investors will see a return on their funding, and what they’ll get in return.
Increasing in popularity in recent years, crowdfunding platforms like FundCircle, Seedrs and GoFundMe allow you to raise funds for a specific business idea. They’re best used when there is something quite tangible that you need in order to get going, and you should explain exactly what the funding will cover if you want people to support you. Take a look at some existing crowdfunding campaigns for inspiration.
What happens next?
Once you’ve decided what type of business suits you, sit down with a small business accountant to run through the numbers and ensure that you minimise tax exposure. Many small business accountants will also offer sound business advice, as they’ve got so much experience working with sole traders, partnerships and start-ups.
We also recommend that you invest in cloud accounting software. Managing business accounts is such a crucial thing to get right from the start, and you can cause yourself real issues if you don’t keep on top of things. Digital solutions are now empowering small businesses to be more efficient in the way they manage their accounts – they also became a requirement for many businesses in April 2019. Warr & Co have partnered up with the leading software providers, so we can help you choose the right solution for your business.