2020 was the Chinese Year of the Rat – associated with the “rat-like qualities” of quick thinking and adaptability leading to success and wealth. After a year of challenges, with many people selecting or being forced into self-employment and starting a business, how can people mimic these qualities?
Online information meant to be helpful can instead be overwhelming. There are many predictions of where the future of business lies and how the post-pandemic world may create unexpected and surprising global trends towards growth and increased investment. But when you are starting from scratch, you first need to understand the basics.
Who wants what I am selling?
The first step is figuring out who your target customer, user or audience is. Where do they shop and how will they perceive you? Data shows that online shopping in 2016 involved 1.66 billion digital buyers around the world – this has been forecast to grow to 2.14 billion by 2021.
Get your news from people who know what they’re talking about.
You can start your business in either structure, as a sole trader or limited company, without your offering being totally perfect. Build confidence incrementally, while testing the market with the “minimum viable product”. In layman’s terms, this means the most basic version of what you are offering that is saleable and works – and that a customer would want, without the bells and whistles that you can add later. It is normal to make changes after feedback.
Register your logo early. There are advantages, whether you are a limited company or not, such as avoiding anyone copying it. The British Library has free comprehensive resources to register trademarks and patents. It is worth checking your design for trademark infringement.
Starting as a sole trader means less scrutiny and regulatory compliance than a limited company – a more formal legal structure can follow. On the other hand, a limited company can make a better first impression to potential investors. Consider trademarks early on. You can register a limited company with dormant accounts just to secure the business name.
In both instances, insurance may be required to protect against public liabilities and product liabilities. If you employ staff, insurance is a legal requirement – and you will need to advise HMRC and pay PAYE. If, as a sole trader or limited company, you are using your car, you need to tell your insurer.
Business rates will apply to a room in your home used only as an office, but there are exempted buildings which you should check.
Whether you are a sole trader or a limited company, it’s a good idea to register a website. Note that a limited company has more protection than a sole trader online. Social media domains also need to be considered. Free services that can help are the Federation of Small Business, the Institute of Directors and The Confederation of British Industry.
Will anyone buy my product or service?
Sole trading gives the impression that there is a person behind the brand, but limited companies can also tell a story and build trust with the customer, client or user. Question your potential customers, and use real data to understand the market. Market research will help you assess competition and risks – has someone already made what you are offering? What issues did they face?
An overlooked question is “why are you not using a product or service like mine?”. Ask yourself and your target customers this. The answer will reveal whether what has stopped this service being created before is linked to anything from price, to accessibility.
Do not be discouraged with a negative answer. Try and come at it from a personal angle. Loyalty is key in building a strong customer base and telling people a story helps them to get to know you. Marketing – or in other words, letting people know you exist – in the digital age means you cannot avoid social media. Use microblogging sites if you are time poor or LinkedIn and paid-for reports, that give you insights into nationwide statistics on things like the cosmetics industry, market trends in your area of interest or information on social media use, although they can be pricey.
What’s the plan?
Deciding whether to be a sole trader or a limited company inevitably means you produce a business plan. For both, it is a thought exercise, a useful checklist of decisions, justification, contingencies and research, predominantly for your own purposes, especially when it comes to being a sole trader. To allow for growth you might need to create another version for possible investors.
The business plan is not a linear document. Think ahead to future trends to recession-proof your business. Follow government policy on climate change through the Climate Change Committee – you don’t want your product to be banned a year after you set up due to changing policy on plastics, for example.
Who should I speak to?
When building a network of people with experience and relevant knowledge, limited companies are regarded more seriously. Businesses need different types of networks – and the chances are that you already know several helpful people. Recommendations establish trust and can accelerate relationships. Mentors do not need to know you exist – you can read about successful business founders and learn from them without ever speaking to them.
2021 is the Year of the Ox, which signals hard work – but also recognition for that work. Choosing how to start your business ultimately lies with you doing your research and making an informed decision. Knowledge is power, after all.
Programme Director UEA Africa Lecturer in Entrepreneurship and Strategy, University of East Anglia