Once you have a good idea for a business, you need to research the market to ensure that your new company is likely to be a success. It is easy, if you are very excited by a new idea, to gloss over the practicalities of what your new company will involve. However, the more market research you undertake and the better you understand your marketplace, the better prepared you will be once your new company begins to trade.
How To Do Market Research
As a starting point, undertake your own market research by contacting industry associations, reading periodicals, speaking to government agencies like Business Link or your local Enterprise organisation, as well as conducting searches on the internet. You might also consider going to the library if you need to find and read specialist publications. At this stage what you are trying to do is to gain a general perception of the type of person who would want to buy your particular product or service, and to draw up a research plan to identify how you propose to do this.
Failure to Conduct Market Research
If you do not conduct sufficient research for your company, you are much more likely to come up against unforeseen obstacles which you may have otherwise been able to avoid. Firstly, it is very important to be objective. Although it may be difficult not to get excited about something that you are very passionate about, you should always conduct research before spending any money on development.
Analyse Your Business
There are in essence four different perspectives that you should consider when undertaking market research for your new company. These are as follows:
To begin with, look at your company’s products and/or services, how they will benefit customers. Then consider this in light of your brand, and how you want to be perceived by your competitors, by your customers and by the public as a whole. What are your key objectives? What are your core values?
Then think about your target market, or the types of customers you are seeking to attract. These break down into three broad categories: the decision-makers who purchase your products or services, the people who influence the decision makers, and the actual end users (the ones who will be interacting with the product and/or service supplied by your company.
One of the most vital pieces of market research you can conduct in relation to your new company formation relates to what your competitors are doing, and how much threat they pose to the success or otherwise of your business.
Finally, consider the help and assistance that you may be able to leverage from people who have an interest in your new company but who aren’t otherwise likely to engage directly with your product or service. These are trade associations, the media, and other organisations.
Pricing
Where you price yourself in the marketplace is also something that requires substantial amounts of market research. Are you a high-cost, high-end brand, a mid-priced necessity, or a bargain basement, high-volume driven business? Pricing is also a factor that determines how others perceive your company, and the size of your profit margins, so it is worth getting it right first time. You must be sure that the price you set delivers enough value to command the cost to the customer. If you can, test different pricing structures to gage which of them is the most profitable for you over time.
]]>What Value Added Tax (VAT) means to you and your business depends on whether or not you are registered for VAT. VAT is charged on the vast majority of business transactions in the UK, and is added when businesses provide goods and/or services to other businesses, and consumers.
VAT Registration
There is no requirement to register for VAT if your business’s turnover is less than £68,000 (for 2009/2010). This figure, known as the ‘threshold’ generally increases by approximately £1000 each year. You can register for VAT if your turnover is less than this, and indeed for businesses that make considerable purchases from large suppliers (which means that they pay VAT on them) it may be a necessity.
If you provide goods and services that are VAT taxable, and you are VAT registered, it is a legal requirement to charge VAT on the full sale price of the items or services you are supplying. This is the case regardless of whether you accept money payment, or part exchange for other goods – you will still have to charge VAT.
It is important to note that if your business is not registered for VAT because you are below the threshold, you will still have to pay ‘input tax’ on goods and services that you buy in connection with your business. However you will not be able to charge output tax on any of your sales.
Input and Output Tax
VAT is divided into two distinct categories. When you charge VAT on your sales, this is known as ‘output tax.’ When you pay others VAT on goods and services, this is called ‘input tax.’ If you have received more output tax than you have paid input tax, you will have to send the difference to HM Revenue and Customs (HMRC) when you file your VAT return (which is most often a quarterly exercise, unless you are on an annual scheme or have another arrangement.) If, on the other hand, you have paid out more ‘input tax’ than you have charged on your sales, HMRC will owe you a VAT repayment.
Rates of VAT
There are several rates of VAT, the most common of which is the standard rate. This is currently at 15%, after it was notoriously cut by the government in late 2008 to try to boost the economy. However, the standard rate is widely expected to return to the more familiar 17.5% at the beginning of 2010. Some goods and services have a reduced VAT rate, such as gas and electricity for homes, children’s car seats and sanitary hygiene products, amongst others.
There are also some goods and services that are charged at 0% VAT. Whilst this may seem not to make any sense, the reason for this rate is this: selling goods or services that are zero-rated means that they are taxable supplies, so that you are still able to claim back VAT on your expenses. If your business is exempt from VAT, you are not generally allowed to register for VAT or reclaim VAT on your purchases.
]]>Regardless of how small your marketing budget is, you can get started on Google Adwords and make your business visible to the world, the UK, or even distinct geographical areas. Google Adwords are the small advertisements that you see on the top and right hand sides of your Google search results. They work on a Pay Per Click basis, and can be set up so that they are highly relevant to keywords that people are using to search on the internet.
Targeted Campaigns
It is well worth taking some time to properly understand how Google Adwords works before you set up your campaign. Although you can set your budget at whatever you like, you do want to make sure that your campaign is targeted and relevant, as otherwise you will simply be wasting money on clicks that do not bring you any business at all.
Research
For example if you run a hair salon in London, you do not want to attract people who are searching for hairdressers in another country, or at the opposite end of the UK. By the time the visitor has clicked on your site and seen that you are in the wrong place, you will have spent money on a completely useless click.
Keywords
You will undoubtedly have undertaken a significant amount of research at the inception of your start up business, and may have a good idea of the types of keywords that you need to use for your Google Adwords campaign. If not, take some time to think about what people would put into an internet browser if they were searching for your type of business. The good news is that there are several different tools available on the internet that will help you to determine what these keywords are: Google Adwords has its own suggestion tool, but you could also use Overture or Wordtracker.
Competition
Once you have determined the main keywords, type these into Google to see how much competition there is for each of these search terms. This will give you an idea as to how expensive it will be to get to Google page 1, and how high up on the sponsored link section you will be. Businesses that have very large Google Adwords budgets are usually displayed at the top of the page (i.e. not in the list at the right hand side.)
Multiple Campaigns
Depending on the nature of your start up business, you may need to have several different campaigns. It is worth creating an ad group for each main keyword. Once you have done this use Wordtracker to determine perhaps another dozen keywords to include in this ad group. This will help you find the people who are looking for your specific product or service.
Good Copy
Perhaps the most important element of your start up’s Google Adwords campaign is the copy that you use in your advertisement. Now that you have determined what your main keywords are, use them in your headline. You are allowed three lines of text, with a total of 95 characters. There are countless resources on the internet that tell you how to write a good ad so if you need help, search online. Next, create your Google Adwords account, set your budget and start running your ads.
Revise Your Ads
Make sure that you run a few different ads to see which is the most effective, using a unique tracking URL for each ad so that you can monitor each one. The good news is that Google Adwords has a beginner’s version which is very simple to use – meaning you can start advertising your new start up business online very quickly.
]]>If you have a limited company or limited liability partnership you will be required to file accounts with the Registrar at Companies House. This is regardless of whether your company is trading or not.
There are deadlines by which you must file your annual accounts, and this will depend when your ‘accounting reference date’ is. If you have a new start up and have incorporated a limited company for this purpose, your financial year will start on the date that you incorporate the company at Companies House. This signals the start of your accounting reference period (ARP) and ends on the accounting reference date (ARD).
It is possible to change your ARD by sending Form 225 to Companies House and can shorten their ARPs as frequently as they like. However there are restrictions on how much you can extend your ARP, which cannot be longer than 18 months after the start of the ARP.
If you have a new company, your first ARD is a year after the last day of the month in which you incorporated the company. A new private company’s first accounts must be filed within 22 months of the date of its incorporation. If your accounts started either on or after the 6th April 2008, this timescale is reduced to twenty one months. Thereafter, a private limited company must file accounts within ten months of its ARD (or 9 months, if the accounts started after 6th April 2008.)
There are penalties in the event that a company fails to file accounts, or is late in so doing. However it is possible, in certain special circumstances, to write to Companies House to request an extension. Any such requests must be made in writing, explaining exactly why an extension is required and how long the extension is proposed to be. Fines for delayed accounts range from between £150 (one month late or less), to £1,500 (more than six months late.)
How To File Accounts
There are numerous documents that you will need to send to Companies House when you file your accounts. Although in practical terms this is something that is undertaken by your accountant, you would generally file: a profit and loss account; an auditors’ report (unless you are exempt by virtue of being a small company); a directors’ report signed by a director or company secretary, including a business review, if applicable and a balance sheet that has been signed by a company director. If your company is dormant and has never traded, you will only need to submit a balance sheet (also signed by a director.)
In addition, you must ensure that your directors’ report includes the directors’ details, as well as information relating to dividends, research and development, charitable gifts given, share interests and share options.
On a practical note, because Companies House scan the documents you send to them and then upload electronic versions onto the website so as to be publicly accessible, you should avoid coloured or glossy paper, and use a clear, black type font, on good quality paper. The company registration number should also be clearly visible at the top right hand corner of the front page.
]]>The Companies Act 2006 is the largest ever piece of government legislation in the UK. It replaces most of the pre-existing company law provisions in the previous Acts (1985, 1989 and 2004) and also makes several very important fundamental changes including: how companies can be formed; the duties and liabilities of company directors; maintenance of share capital and the rights of shareholders.
The introduction of the provisions in the Companies Act has been a slow process. While it had been anticipated that all provisions would be in force by the end of 2008, there have been delays and the Act will now be fully in force by 2010. Some of the main effects of the 2006 Act are as follows:
Company Directors
Company Directors are now allowed to file service addresses with Companies House, rather than having to give their home addresses (which makes them a matter of public record). Directors now also have a duty to promote the company’s success for the benefit of the staff of the company, the local community and the environment, as well as the company’s customers. Failure to recognize this duty could now result in legal action being taken by shareholders (see below.)
Audits
A new criminal offence has been created that makes it unlawful to include false, deceptive or misleading information in audit reports. Companies are now also able to limit the liability of their auditors.
Shareholders
Shareholders can now sue company directors for negligence as they have a duty of care in relation to the company and its shareholders, and they also have the right in certain circumstances to bring other claims on behalf of the company. Shareholders proxy powers have also been enhanced, to promote a culture of long-term rather than short term investment.
What This Means For Small Companies
Table A in the Companies Act 1985 has long provided model Articles of Association for companies. However this has not taken into account changes in the law as they have occurred over time, and therefore has become outdated and largely irrelevant. The new Act now provides model Articles for small limited companies, as well as public limited by shares and companies limited by guarantee.
The Single Director Company
One of the most significant changes for small limited companies is the introduction of the single director company. Since April 2008 there has no longer been a requirement for a limited company to have a separate company secretary.
No Requirement To Hold AGMs
There is now no need for private limited companies to hold Annual General Meetings. Instead, decisions can be made within private companies by passing resolutions. Whereas in the past written resolutions required the unanimous consent of the members, the new Act now provides that the rules relating to special and ordinary resolutions apply to written resolutions. This means that a 75% majority is sufficient.
Other Changes
Previously, there was a ban on private companies requesting financial assistance to be able to purchase their own shares. This ban has now been lifted. The Act also embraces modern technology and provides for much greater use of electronic communications.
]]>You may be considering whether or not to form a limited company, either for your start up or because you have been trading as a sole trader for a period of time and are considering switching to limited liability. If you are a sole trader you will have the burden of knowing that you may lose your own property if something goes wrong with your business, and this liability is unlimited.
Limited Liability
One of the main reasons why people incorporate limited companies is because of the reduced risk to individual directors’ and shareholders’ personal assets if the company fails. Even if the company goes into receivership, or is wound up, you will not lose your assets. However, it is worth noting that in order to benefit from limited liability, you must operate the company within the law and in accordance with the provisions in the Companies Act.
Increased Confidence
Customers and suppliers of limited companies often feel more confident if they are dealing with a limited company, which gives the business a generally more professional appearance. It is fair to say that some larger businesses prefer not to have to deal with sole traders or other unincorporated entities, so forming a limited company could in fact mean that you gain more – and better – business.
Costs of Running A Limited Company
Although there is a common perception that there are considerably increased costs in running a limited company, the reality is that the difference may not be that noticeable. Your accountancy fees may go up, but changes to company law in recent years have resulted in the accountancy and taxation costs in running a limited company have significantly reduced. Add to this the changes that have been made to Corporation Tax, and the increased administration that comes with running a limited company begins to look like a small price to pay.
Dormant Companies
It is also possible to incorporate a company at Companies House and not to trade through it. This means that the company is ‘dormant’ until such time as you decide to begin trading through it. There is no obligation ever to begin trading, but having a dormant company means you must file dormant company accounts each year, like other companies, and must also file an annual return.
Incorporating For Future Use
If you do decide to incorporate a company at Companies House, you can do so relatively cheaply – either with or without a formation agent. One benefit of this is that you ensure that no one else is able to take the company name for themselves. Although it does not give you any rights to use the business name, it does mean that you have exclusive right to use the business name if you choose to at some point in the future. Often people do this in anticipation of expansion of their existing businesses, or in the event that they branch into other areas.
]]>What Is A Sole Trader?
There are more sole traders in the UK than any other type of business, and constitutes the easiest way to begin trading. When you are a sole trader, you take on all the benefits and the responsibilities of your business’s assets and liabilities.
As a sole trader you can trade in your own name, or use a business name. E.g. you can trade as ‘John Smith’ or ‘John Smith trading as ‘Freedom Taxi Services’. You can set up a bank account that accepts payments in your trading name, although if wanted to incorporate your business as a limited company later on, there is no guarantee that ‘Freedom Taxi Services limited’ would be available, unless you pay a company formation agent to reserve the name for you.
When you begin trading as a sole trader you must register with Her Majesty’s Revenue and Customs as ‘self-employed.’ If you fail to do this, you may need to pay a penalty. In terms of tax, you will be required to complete a tax return and be taxed under the self assessment rules. You will pay tax on your taxable profits, at the applicable tax band (either 20% or 40% or a combination of the two, depending on how much profit you make.)
You are taxed on your business income alongside your personal income, so if you have additional sources of income aside from your business (e.g. rent from a rental property) these will be included on the self-assessment for. As a sole trader, you will be liable to pay Class 2 and 4 national insurance contributions (NIC.)
If your business turnover is greater than £68,000, or if you expect your turnover to reach this amount over an annual period, you will also have to register for Value Added Tax (VAT) and collect VAT on all your invoices, as well as submitting quarterly or annual returns to Customs with the appropriate outstanding VAT.
Unlike the administrative burdens that come with being a director of a limited company, sole traders have substantially less paperwork and administrative duties, leaving them more time to get on with what they want to do –making profits!
If something goes wrong with your business, for example you fail to honour payment under a contract, the creditor can come after your personal assets as there is no distinction between them and the liabilities of your business.
If you have a good year when you are a sole trader, there is no way to defer payments of the tax liabilities that you incur
Whether a company or sole trader business structure is right for you will depend on a number of factors. If in doubt speak to your accountant as they will be best placed to advise you as to the tax implications and your particular circumstances.
Although it is possible to incorporate a limited liability company yourself, you may decide to use the services of a UK limited company formation agent. This will ensure that all the forms are completed correctly, the appropriate fees are paid, and – if you use a good formation agent – Companies House are notified of the appointment of you (and others, if applicable) as directors and company secretary.
Some companies are incorporated from scratch, whereas others may have already been incorporated and you can buy them ‘off the shelf’. In the case of the latter, the company may have a different name to the one you want to use and your company formation agent should provide you with the appropriate forms to send to Companies House, with the amended Memorandum and Articles of Association showing the new name. There is a small fee if you want to change a company’s name, and you also need to pass a resolution with the directors of the company to confirm the change.
A good company formation agent will incorporate your company for you and then send you all the requisite documentation. The fee for incorporation is £20, which can be expedited to same-day incorporation for a fee of £50. Obviously this fee is payable to Companies House and using a formation agent will cost more than this. However, if you choose a formation agent to incorporate your company, you can choose a company that was incorporated some time ago, which some people prefer as it makes their business look as though it is more established.
There are four main documents that the formation agent will lodge at Companies House: The Memorandum of Association, which sets out the company’s objectives, (which is sometimes simply to carry on business as a commercial enterprise) its registered office, its capital and liability; the Articles of Association, (which details the structure of the company); Form 10 that stipulates who the first director, and company secretary of the company are; and Form 12, that confirms that the Companies Act requirements have been compiled with.
If you wish to ensure that your company is incorporated properly and within a short period of time, you would be wise to use a formation agent. A good UK company formation agent should offer you a comprehensive service that could include telephone support in relation to your new formation, as well as advice on marketing, insurance and trademarks.
However, you can always expect the following: a limited company, with the name of your choice, and the official certificate that proves incorporation at Companies House. You will also receive share certificates, and the first and second meeting minutes. It is very important to ensure that you also receive a certificate that confirms that the company has never traded. This is because if your company has previously traded, it may have run up bad debts or be liable for other matters of which you are not aware – and this is something that you certainly need to avoid!
]]>You may have a fantastic business idea, a well-defined target market, and a marketing plan in place –now all you need is to decide what to call your business! When it comes to choosing a good limited company name, there are a few restrictions. You also cannot choose exactly the same name as someone else’s limited company, so it is important to check whether the name you want is available by searching for it on the Companies House website.
Remember that your company name is in effect the word that will become synonymous with your brand – the unique element that singles out your goods or services from others in the marketplace. Although it is possible to change your company name at a later stage, it is expensive to do so – and you will have to change your website, company literature, stationery etc – so it is well worth getting it right first time.
If you choose a limited company name that is not easy to spell, not easy to remember, or perhaps suggests that you offer goods or services that are completely different from your business, e.g. you sell kitchens and call yourself ’Fred Smith Consultancy’, then you are not making the most of the branding opportunities that a good, memorable name can offer. Some of the largest brand names do not have anything to do with the products or services that they offer, e.g. Zurich (financial services), Apple (computers), Amazon (online store) amongst many others.
Aside from not being able to use the same limited company name as someone else, regardless of whether that registered company is dormant or trading, there are other restrictions. You cannot include the letters ‘plc’ in your company name if you are a limited (LTD) company, and obviously you should avoid using other people’s trademarks in your company name. In addition, you cannot use offensive or ‘sensitive’ words either.
Think Ahead
If you are starting up in business offering a narrow range of goods or services, there may always be the chance that you will choose to expand in the future. If you have named your business too narrowly, this may cause you problems in the future. For example, if you called yourself “Sarah Brown Secretarial Services” but you also began to offer copywriting and proofreading services, you may dissuade potential clients from using your services because your name does not reflect all that you do. In these circumstances, it would be better to use “Sarah Brown Business Support Services” or just “Sarah Brown Limited” instead.
Before you go ahead and incorporate the company with the name that you want, it is also worth looking at domain names to ensure that you can get one that correlates with your company name. More and more businesses are choosing to go online and some even consider it vital to have a presence online, even for ‘shop window’ purposes.
Securing a domain name is not just important for your company’s website, but also provides you with a professional looking email address. You do not have to build a website at the very beginning of your business’s life, but it is worth having the registered domain name to ensure that no one else takes it. You can generally secure a domain name for around £10 for one or two years, which is a small price for peace of mind!
If your business is web-based, you may consider that it is worth searching for available domain names, and then consulting Companies House to see whether the correlating company name is available to ensure uniformity of your brand.
]]>People write business plans for a wide variety of reasons. Whether your intention is to secure funding or finance for the business, to persuade potential investors that your business is a viable going concern, or to explain the aims and goals for the business to the directors and/or employees of the company, the best business plans are written with their audience in mind.
If you have never written a business plan before, it is very important to ensure that you know what a typical business plan includes, and the format that is widely accepted as standard. The exact layout and contents of a business plan is outside the scope of this article, but there is a wealth of information available on the internet. Make sure that you use UK resources, as styles can differ from US business plan formats.
One of the most important pieces of research you will ever do in relation to your business is researching the market and your competitors. This is the case regardless of the industry you are in, and however many or few competing businesses there are. If you can show in your business plan that you have a comprehensive awareness of the marketplace, you will be better able to define your unique selling point (USP) with which to impress potential investors or financiers.
Your market research should also include likely target markets: the size of the market that is available to you; the growth that you expect the business to enjoy in the short, medium and long term; as well as how you intend to raise awareness of your business and advertise it to as many people as possible.
A good business plan is not overly optimistic about what the business’s goals and future achievements will be. Inflated claims are very likely to sound alarm bells with potential investors or lenders who are making decisions on whether to loan you money.
The words and language that you use is as important as the presentation of your business plan. If you do not write well, get someone you trust to check through the document before you send it off. Poor spelling and grammar do not instill confidence in the reader that you take pride in your work!
If you are using research from other sources, make sure you refer to the material that you have used. If you are using someone else’s facts and/or figures, it is vitally important that you do so accurately. Similarly, check and double check your figures – which should be detailed, fully explained and realistic. Your intended reader should find it easy to see how many sales you need to make to break even, and how much money you need for start up costs.
Although you may find it easiest to write this part of the business plan last, it is very often the first thing that people read and should be at the beginning of the plan. Investors usually read this section first, and only move onto other areas if they like what they have read in the executive summary. Therefore it should be interesting, engaging, and instill a desire to turn the page to find out more.
Once your business plan is finished, make sure you get someone who has experience of business plans to review it. Speak to your local Business Link manager or contact your nearest Enterprise Agency for assistance.
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