If you are contemplating starting an online business in the UK in the near future then you are in excellent company. According to the Office for National Statistics (ONS), as of 2022, e-commerce sales represented 25.3% of total retail sales in the UK. The UK is now widely viewed as having the most advanced e-commerce market across the whole of Europe, with around 60 million e-commerce users. The potential for success in the online business world is enormous but, in order to achieve this, planning and preparation is essential. In this article we will explain how to go from idea to income and, ultimately, sustainable business success.
1. Identifying Your Business Idea: Finding Your Niche
Finding your market niche can yield great benefits. Although it may be tempting to go after a broad customer base, tapping into a narrower market need has a number of important advantages, including:
- Getting your business off the ground more quickly
- Less direct competition
- Allows you to establish your business on a firm footing
- You can tap into your existing knowledge and experience
- You will be perceived as an expert in your chosen area
- Marketing costs are significantly reduced
- Ability to leverage existing market knowledge and reach out to existing contacts
- Allows for future expansion into other areas
Business success is made far easier by understanding the needs of your potential customers and how to solve their problems. Furthermore, let us not forget the small matter of confidence. By starting off in a specific domain in which you have existing knowledge and experience you will be very self-assured when speaking to potential clients, which will then convert to sales and client satisfaction.
2. Market Research: Understanding Your Target Audience
It may be tempting to get your business off the ground as soon as possible, but the results may be fruitless if you do not know your audience. You need to understand their market, the problems that they face and how your products or services can help. This is the aim of market research. Taking the time early on to speak to those whom you hope to attract to understand how you can help them will pay dividends. Do not just assume that you understand the market: Ask!
Market research should not be carried out in an “ad-hoc” manner. Rather, it ought to be planned carefully in advance to ensure the best possible results. Market research may take months to complete and require significant financial investment, depending on the scale of your new venture, but it will be worth it. Market research methods may include data analysis, interviews, surveys and focus groups. Well-executed primary and secondary market research will also allow you to compare your offering with that of your competition. What is it that they do that you could do better? This will allow you to differentiate your products and services from those of your competitors.
3. Creating a Business Plan: Mapping Your Path to Success
You would never embark upon a long, arduous journey without knowing how to get to your destination and deal with the challenges along the way. The same applies to starting a new online business. Creating a comprehensive and detailed business plan will allow you to “join the dots” and navigate a path to success. Your business plan will not only help solidify your thinking but also help others, including and especially investors, to understand your vision.
A comprehensive business plan should always include details of your:
- Background and how this has led to your new business idea
- Product and service offering – including benefits
- Target market/sector
- Market research – i.e. a summary of your market research and the potential market size
- Routes/channels to market
- Sales and marketing approach
- Pricing model
- Management and personnel
- Business operations – e.g. logistics and warehousing, HR, premises, IT
- Financial projections – projected sales, cash flow, debts, assets, and costs in the first 5 years
- Investments – explain how you intend to attract investment
- Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis
- Plans for growth and expansion
This list of areas to cover in your business plan is by no means exhaustive. To ensure that your business plan is thorough and complete, speak with a business start-up advisor who can guide you through the process and give you an impartial perspective.
4. Choosing the Right Business Structure: Sole Trader vs Limited Company
Another key consideration when starting a new online venture is choosing your business structure. Depending upon the scale of your plans, you may decide to run your business either as a sole trader operation or as a limited company. Sole trader businesses are controlled by a single owner who is personally liable for the whole business. A limited company, on the other hand, is a legal entity that is distinct from its one or more shareholders – i.e. owners – and personal liability is restricted to the amount invested. In other words, a sole trader cannot be separated from their business whereas the owner of a limited company can. The main downsides of a limited company include the increased filing and reporting obligations which must be met each year, together with the fact that company accounts are in the public domain.
One area that many entrepreneurs often overlook in the initial stages of their business planning is the legal and regulatory environment. Understanding this is key because failure to do so may prevent your business from operating legally in the UK. Not only will you need to register your new limited company with Companies House but you must also understand the relevant UK regulations, including:
- Electronic Commerce (EC Directive) Regulations 2002
- Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013
- Consumer Rights Act 2015
- Data privacy regulations (e.g. UK GDPR)
- Privacy and Electronic Communications Regulations 2003 (PECR)
- Payment processing regulations
- Tax regulations
This list of regulatory considerations, however, is by no means exhaustive. Depending upon your chosen business area and industry sector, there may be specific regulations that you need to understand and to which you must adhere.
6. Managing Finances: Business Bank Account, Invoicing, and Taxes
When setting up an online business in the UK you will need to open a new business bank account in the name of your new company. You should preferably choose a UK bank that is regulated by the Financial Conduct Authority (FCA) and by the Prudential Regulation Authority (PRA). Having a corporate bank account will ensure that your personal and business banking is kept separate. If you are not a UK resident then you may need to consider opening a bank account in another country, a virtual bank account, or an account with an international bank (e.g. Barclays or HSBC). If you are unsure of your best option then speak with a UK accountant who can advise you. Your accountant can also give professional advice on invoicing, payroll, taxation and annual financial accounting.
7. Building Your Online Presence: Website, Social Media, and Branding
As an internet-based business there are many ways to establish a robust business brand and online presence. Where possible, consider engaging a specialist in digital marketing who can advise on how best to approach your website, social media, content and branding.
The approach that you take will depend largely upon your chosen e-commerce business model – e.g. online store, drop-shipping, white or private labelling and subscription. It will depend also upon your target audience and where they are based. For example, if you provide professional services in the recruitment sector then you may choose the Social Media platform “Linked-in” to meet some of your marketing needs. On the other hand, if you provide services with a strong visual component – e.g. art, cars or restorations & renovations – then you may instead choose Instagram.
Building a strong network using social media, YouTube, podcasting or any other method can be an excellent way to establish both your brand and also, at the same time, a ready-made audience for your products and services.
8. Developing Your Product or Service: Ensuring Quality and Value
Even the most innovative business ideas will fail if you do not pay attention to the quality and value of your products and services. Ultimately, customers are looking for consistency and quality but at an affordable price. When developing your products or services you must decide how you can make a profit without compromising either on quality or on customer satisfaction. Furthermore, it is important to ensure that your customer service is of a high enough standard and that this is maintained consistently.
9. Marketing and Customer Acquisition Strategies
Your marketing and customer acquisition strategy cannot be left to chance. You want to know exactly how you will reach your target audience and then the process by which they will buy your products and services. As a new online business you will need to consider:
- How you can make potential customers aware of your products and services
- How you can encourage your potential clients to consider your products and services – e.g. by providing a sample or trial
- How to convert your potential customers into real customers.
Key to customer acquisition as an online business will be your creative & content, marketing and sales teams. Furthermore, anything that you can do to ensure that your customers are satisfied – having bought your products – is invaluable. A dedicated customer success team will improve satisfaction, reviews, retention, repeat sales and new business.
10. Scaling Your Business: Financial Management and Planning for Growth
Finally, although your main focus may be on setting-up and running your new online business, remember also to look to the future. If you can delegate the day-to-day running of your operation to others then you can devote more of your own time to expanding the business. Having realistic financial objectives and working to achieve these will mean that you can scale (i.e. enlarge your operation) more successfully. You may decide to scale by diversifying into new products or services, by bringing more aspects of your supply chain in-house or even by expanding into other regions or countries. If you can show that your business is in a strong financial position then you are more likely to attract the investment – and/or to gain the borrowing – that you need to expand further in the future. Ultimately, proper financial management today will enable your business to scale and grow tomorrow.
Uniwide Formations is a leading specialist in UK company formation. We are experts in how to set up a UK limited company and will handle the complete process of company incorporation on your behalf.