How to start a small business in Croydon
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Posted: Wed 26th Jun 2024
Always dreamt of starting your own business but don't know where to begin? Have a great idea you think will work? No problem! With the right guidance and planning, launching a new small business is well within your reach.
In Croydon – indeed, across London and the UK as a whole – small businesses play a crucial role in boosting the economy and driving innovation.
Whether you have a passion for a specific industry or you're simply looking to be your own boss, starting a business can be a rewarding and fulfilling experience.
But it does require some careful planning, dedication and hard work. From developing your business idea to writing a business plan and working out start-up costs, there are many steps to getting things up and running.
In this blog, we cover some of the most common questions people ask about starting a new business. Hopefully you'll get the answers you need to turn your entrepreneurial dreams into reality.
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Common questions about starting a business
How do I come up with an idea for a business?
If you already have an idea for a small business, that's a great start. If not, there are a few different ways to generate one.
Identify a problem or need in your life (or the lives of other people you know) and brainstorm possible solutions.
Think about your passions, interests and skills, then consider what type of business would line up with what you enjoy and are good at.
Examine the local market to identify trends and opportunities and find that unique and viable business idea.
More business idea guidance:
How do I know who to sell to? Do I need to do market research?
Yes! Your first step should be to study the market in which you want to operate. OK, you're targeting certain people in Croydon to begin with, but who exactly?
Gather precise information about your target audience, as well as your local competitors and any industry trends.
Essentially, there are three elements to good market research:
Identifying your target audience: This will help you understand who your potential customers are. You'll look at information such as age, gender, location, interests and purchasing behaviour (i.e. how they prefer to buy, and which brands they shop with).
Having a clear idea of these demographics means you can tailor your marketing strategy to reach and engage your audience effectively.
Doing surveys and focus groups: These research methods can give you deeper insights into what your customers need and prefer.
With surveys, you can ask customers specific questions about their preferences and opinions. Focus groups, on the other hand, bring a small group of people together to engage in discussions and provide feedback.
Doing competitor analysis: Studying your competitors – their products, pricing and customer feedback – can help you identify market trends, find gaps or niches, and position your business suitably.
More market research guidance:
What are the different ways to set up a business and how do I choose?
There are several ways to legally set up a business. Which structure you choose will depend on your circumstances and preferences and how you want to run things. Here are the three most common options:
Sole trader: When you run the business on your own and are personally responsible for everything. You have full control, but all of the risk is on you alone.
Limited company: When the business is its own legal identity, separate from you as owner. Your liability is limited to the amount you invest in the company, which means you don't risk losing any personal assets. Limited companies must also keep to specific legal and financial rules.
Partnership: There are two types of partners – general partners (who manage the business and have full liability) and limited partners (who put money into the business but have limited liability and don't run it from day to day).
Once you've decided on the best structure for your business, there's some important admin to take care of in terms of registering your business with Companies House and/or HMRC (see below).
Who do I need to notify about my new business?
Sole traders
If you've set up as a sole trader, you must let HM Revenue & Customs (HMRC) know. You can register your business using HMRC online services.
If your business reaches the threshold for compulsory VAT registration (in 2022, this is £85,000 in the previous 12 months or lesser period), you must notify HMRC and register for VAT. However, it can be advantageous to register even if you're below the threshold.
Depending on the nature of your business and whether you're operating from a business premises, there may be other bodies you should notify, such as your local authority.
Limited companies
If you create a limited company, you must notify Companies House, who will then notify HMRC. HMRC will send you a form that you must complete and return within three months of it being issued.
More guidance on registering a business:
Can I start my business by working from home?
Working from home requires considerable self-discipline and doesn't suit everyone. However, it's an excellent way of starting a new venture when the business proposition allows.
This is because you have lower overheads during that all-important stage of establishing the business.
It'll also allow you to claim a percentage of your property's running costs as an office. The danger here, however, is that HMRC might consider your claim excessive and launch an inquiry, which could result in disallowed costs and an increased tax bill.
There's also the possibility of having to pay capital gains tax when you eventually sell the property.
If you do decide to work from home, consider notifying these organisations:
Your local authority: There may be a case for paying business rates but it's unlikely if the local authority decides that there has been no material change in the use of the house (from residential use).
Your insurance companies: Your contents insurance will probably need to specify any business assets – computing equipment and so on – to make sure they are covered.
Your bank/building society (if you have a mortgage): This is usually a formality but it's advisable in case there is a potential breach of the mortgage agreement.
Can I use my own vehicle in the business?
That all depends on the business structure you've chosen.
If you're a sole trader or in a partnership, you can bring a private vehicle into the business right from the start. But if you do, it's important to keep all your receipts for petrol, repairs, insurance etc.
For tax purposes, you must also keep a record of your business mileage so you can calculate the allowable business share of the total running costs.
For limited companies, bringing a private vehicle into the company is less advised. This is because of HMRC's 'benefit in kind' regulations, which assess the benefit derived from the personal use of a company car together with the fuel benefit.
You can include business-specific vehicles, such as delivery vans used solely for business, in the business's assets and recover all costs against the business, but not if you use them for personal reasons.
What insurance must my business have?
By law, if your business has employees, it must have employers' liability insurance. There are minimum amounts which the insurance must cover. The Health and Safety Executive (HSE) is responsible for enforcing the law on employers' liability insurance.
If your business uses motor vehicles, you must have at least third-party motor insurance. If motor vehicles form a core part of your business's trade, you'll need a specific policy (for example, for vans carrying goods).
Apart from these compulsory insurances, there are a number of risks which it's prudent to insure against.
These include:
public liability insurance covering the public for death, injury or damage to their property which happens as a result of your or your employees' negligence
buildings insurance and contents insurance
business interruption insurance covering periods when you're unable to do business because of damage to your property (such as flooding)
More business insurance guidance:
What accounting records do I need to keep?
By law, every business must keep adequate accounting records.
HMRC does 'records checks' to make sure businesses are complying with its requirements. Similarly, if your business is registered for VAT, you must keep financial records according to the guidelines HMRC has given.
If your business is a limited company, the Companies Act says you should keep proper accounting records of:
money you've received and paid
all sales and purchases
your assets and liabilities
If you employ staff, you must keep proper records for Pay As You Earn (PAYE) and for calculating what tax you owe. All employers' payrolls are linked to HMRC using Real Time Information.
It may be that because of the type of business you run, there are other records you must keep to stay within the law. If your records are inadequate in any of these areas, you could face a legal penalty.
More business accounting guidance:
Should I use accounting software to manage my finances?
Almost certainly! If you already have a computer, using accounting software to run the accounting and management information systems can make such a big difference to your business. The software provides fast and detailed information, saving you time and money.
There is now a wide range of small business accounting software packages that don't cost too much. Read our guide to accounting software to learn what options you have.
It's important, however, to seek independent professional advice (with an accountant, for instance) on which systems are suitable for your particular business.
If your business is VAT-registered, you must file your VAT returns via HMRC's online system. Using accounting software greatly assists this process.
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