How to Start a Business in England and Wales

Suppose you have a great business idea, but you are unsure how to make it a reality. You may need guidance on starting your very own business and building it successfully. To help, this article will walk you through the essential planning all small business owners should consider before they start trading. It will then explain what steps you need to take to start trading. Finally, it will explain how to structure your business by giving an overview of the four most commonly used business structures in England and Wales. 

The First Steps

The Business Plan

Most successful businesses start with a business plan, which takes a good idea and carefully considers how to bring it about. A good business plan will enable you to forecast your short, medium, and long-term needs. It will also help you attract investors, which are crucial if you want your business to grow in the future. 

A basic business plan should determine:

• the product you are selling. Is it something tangible, like a piece of machinery, or do you provide a service, like an electrician? Sometimes, the answer is both, for example if you own a restaurant;
• who your customers or clients are; and
• how will you market your business to them.

Answering these three questions will guide the rest of your decisions when establishing a business.

Fixed and Up-Front Costs 

There is also the financial component to your business plan. Two essential components of your business plan are your:

• fixed costs: how much you will spend to create the product you are selling and how much you will sell it for; and
• up-front costs: what equipment you will need to start your business.

Financing

The last element of your business plan is determining how to pay for fixed and upfront costs. Do you have savings that you can put into your business? Or, will you need help from your friends or family? 

If you are thinking about raising money from someone other than yourself, you should familiarise yourself with methods of raising capital. Even if you do not presently plan to raise money from outside investors — such as by taking out a small business loan from a bank — you will most likely tap into outside investors in the future as your business grows. 

Other Considerations

A Bank Account

The type of bank account you may need will depend on how you structure your business. In some cases, such as if you are a sole trader, you may be able to use your personal bank account. However, if you trade through a company, your business will need its own business bank account. 

Business Insurance

You should consider whether you need business insurance. If you are selling goods or services with any of the following properties, you should look into insurance policies, whether online or by speaking to an insurance broker, if:

• there is a risk that your goods or services could injure someone else, including yourself, your customer or a third party. For example, if you work in the automotive industry or drive in the course of your business;
• there is a chance that the goods or services could damage property, including your own, your customers or anyone else’s; 
• you could cause someone else economic loss. For example, if you provide an advisory service such as consulting; or
• it costs a lot to make the goods or provide the service per unit. For instance, a business selling computers that you assemble yourself would incur a high cost per unit. Selling knitted scarves at a monthly local craft fair would have a lower cost per unit;
  

If you answer yes to any of these questions, your liability will be considered “high”. If something goes wrong, there is a greater risk you will have to pay a large sum of money. 

The exact extent of your liability depends on how your business is structured. However, regardless of how you begin trading, it is always sensible to have some insurance policy in place. 

Starting to Trade

Having reflected on the preliminary steps, you are now ready to begin trading. The good news is that, in England and Wales, unless you will immediately be trading large amounts of money (more than £80,000 per year), you can simply start trading in your sole capacity. You will be a sole trader. 

You can also work with a partner and form a general partnership. You are free to trade using your name or under a brand name in either case. However, the law does not distinguish between you and your brand name until you incorporate. This means you will be liable for all debts incurred as a sole trader.  

Business Structure 

The four most common business structures are:

• sole trader;
• general partnership;
• limited company; and
• limited liability partnership. 

Importantly, you can only obtain limited liability by trading through an incorporated business. Most incorporated traders operate through the private limited company, but the limited liability partnership is the other main incorporated business structure used in England and Wales.

A significant advantage to trading through incorporated companies is that you are not liable for the company’s debts. This means that if your business gets into trouble and cannot continue trading, your personal assets will not be in danger even though you technically own the company. 

Taxes and Reporting Requirements 

Generally, your tax liabilities differ depending on your business structure. Limited companies can offer their owners more advantageous tax plans, depending on how you account for your profit and expenses. 

Likewise, each business structure has different reporting and disclosure requirements. In general, incorporated businesses have more responsibilities than incorporated, which can be quite a disadvantage, especially if you intend to pay someone to help you administer your incorporated business. 

Key Takeaways

Before you start trading, you should have a business plan in place. This means that if someone asks you what your business is, you can tell them:

• what you sell (a good, a service, or both);
• who you will sell it to and how;
• how much it costs you to sell it;
• how much you will charge to sell it; and
• how you will pay for it.

You should consider as well how you wish to organise your business. You may need to consider if you need to acquire insurance. It is also never too early to start thinking about which business structure you will use to trade. 

If you need help with starting a business in England and Wales, or if you are uncertain if you should incorporate your business here, our experienced commercial lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.

Frequently Asked Questions