At the beginning of 2020, the FSB recorded that 5.9 million small businesses were registered in the UK. Incredibly, that figure had grown by +113,000, an increase of 1.9%, from the previous year.
Globally it’s estimated that around 69% of all startups are home based businesses, and forecasters are expecting that figure to increase in 2020 due to rising redundancies and economic uncertainties.
But when it comes to starting a small business from home in the UK, what exactly do you need to know?
We’ve compiled a five step plan to help entrepreneurs and new business owners set up a small business from home.
Related Reading: The Complete Guide to Setting Up a Business
1. Cement a business idea
Every business must be based on a viable business idea, otherwise it will not succeed.
Whether you’re planning to practice as a home therapist, or you’re starting a digital consultancy business from the comfort of your home office, you must make sure there is a demand for your products or services.
Home based entrepreneurs should therefore go through the identical process of market research and competitor analysis that all business owners undertake.
Run your business idea by friends and family, and research your target customers. Identify whether they are local or online, what products or services they will desire, as well as what price range they would be happy to pay.
Once you have this information, turn to competitors. If the market for your idea is too saturated, your business may be unlikely to succeed, or it may take longer for you to establish yourself as a go-to in your industry.
Additionally, look at what your competitors are offering. Will you be disadvantaged in any way by being home-based, or will that perhaps be a desired USP for your customers?
2. Create a business plan
For entrepreneurs and new business owners, a home based business is an attractive proposition due to its low startup costs.
However, even businesses set up with low overheads and reduced financial costs must have a business plan. This not only keeps the business focused on achieving its set goals, but the plan is also available to then potentially present to funders or investors down the line.
Business plans should outline these five sections:
- The Overview
The overview section is typically a short summary of your business idea. It will also contain information as to who your target market is, how you will aim to drive business, and the business milestones that have been set.
- The Analysis
The analysis section enables you to delve into more detail surrounding elements of your business like its potential customers, the gap that it will fill in the market, and an analysis of how it lines up against your competitors.
- The People and Products
In this section the business plan must give details as to who is involved in the running your business (including directors or shareholders) as well as who will be providing services (even if to begin with it is just you). Alongside this the section must comprehensively list the products, services and any packages you offer as well as their pricing structure.
The operations section details how your business will run day-to-day. Whilst your base may be home, you must specify which room it will be in: For example an office or study. If your business will have customers coming to your door, you must specify whether there are specific entrances and exits, as well as how you will separate work from home. Those who are making physical products will also need to list whether they will be using, or requiring, a separate space like a garage, shed, or outhouse.
In the money section, you must outline your current financial situation and detail what you will be using to initially fund the business. This can include savings or just a current account balance. It’s advised to set a financial goal for the first month of your business, so that you are actively working toward something.
Over time, and depending on business success, this section may develop into a more detailed financial projection. The most important thing to state is simply how much money you have funded your business with, and how your business will make that initial cost viable.
Within the money section you may also want to include any future plans for hiring an accountant, or research you have undertaken into business bank accounts. At iFinance Department, we can research on your behalf, and take care of your virtual accountancy needs.
3. Make your home business-ready
Depending on what business you will be setting up will depend on whether you need to make changes to your home to make it an appropriate place to base your business.
The key things to consider when you are setting up a business from home include:
- Planning Permissions
If your business won’t need to alter the structure of your building and will instead be housed within it, current government guidance states planning permission shouldn’t be required.
However, if your home will no longer entirely be a private residence, or you will have an influx of customers visiting your home and residential area, you will need to investigate planning permission. This is especially relevant if your business activities could cause disturbance in your area. Disturbances could range from things like increased traffic, to car parking practicalities, as well as things like increased noise levels from any product manufacturing.
- Mortgage Repayments
Setting up a home business should have little to no change in your mortgage repayments, however it is current government guidance to advise your mortgage provider that your home will be accommodating a business.
- Insurance Policies
Tailored home business policies are relatively straightforward to set up, and protect you against any risks that could be incurred with your business venture. We talk more about this in the next section.
- Health & Safety Regulations
If your business will be more digitally based, for example, yourself working from your laptop or home computer, you will not need to ensure you are health and safety compliant.
However, businesses that will be making products or having customers visit must run health and safety checks to make sure their property abides by the government legislation.
- Establishing a business address
Depending on the type of business you will be operating, potential clients may be dissuaded from working with a business that does not have a separate business address.
Alternatively if you are currently classed as a tenant in your property, you may not be legally qualified to register a business at your current address.
In these situations it may be beneficial to sign up for a virtual office space. Virtual office spaces protect your home address from prying eyes, and if you happen to move, can save you needing to send statements to HMRC, or marketing materials containing your change of address.
- Your neighbours
Finally, it is wise when running a home business to consider your neighbours. If people will be visiting your home address and parking on the street outside their property, it is courteous to let them know.
Likewise it is also polite to let them know if you will be receiving more deliveries, or there could be an increase in noise levels due to your business. Inform them that you will attempt to keep disturbance to a minimum, and stay to that promise.
4. Take out the right home business insurance
Taking out the correct insurance for a home business is essential, especially if your business could in any way endanger your property (i.e a fire).
The main insurance covers to consider are:
- Public liability insurance
A large majority of home business policies will include public liability insurance as standard. Public liability insurance is especially important if your customers will be visiting your home address, as it protects you against any injury suffered to the client or their property.
- Product liability insurance
If your business will be creating or designing products, product liability insurance protects you in the event of your products causing personal injury or property damage.
Product liability insurance is mostly included in specialist home business insurance policies, so be sure to search for the option to include it.
- Professional indemnity insurance
Indemnity insurance covers businesses who will be offering services where personal information may need to be processed. It protects against claims for either negligence or error in the event of data being breached and client confidentiality being jeopardised.
- Employers’ liability insurance
If your business grows and you need to take on an employee, all employers must take out employers liability insurance. Employers liability insurance covers you against events such as employees becoming injured whilst using equipment that belongs to the business.
In addition to these policies, it may be recommended to look into other insurances like contents, stock and vehicle insurance to make sure your business is correctly covered against all unforeseen events.
5. Register your new home business
Finally, there are legally binding registrations that businesses must undertake.
Any new business in the UK must contact and register with HMRC. If the business will be set up as a Limited Company, Companies House must also be contracted and informed.
In addition, home businesses must consider VAT. Business must register for VAT (Value Added Tax) if they expect to turnover more than the £85,000 threshold within a year. However, businesses that don’t expect to breach the threshold can also register prematurely.
Read more about the Advantages and Disadvantages of Registering for VAT.
Depending on the type of business, registering for home business rates may also need to be taken into consideration. If the business will be primarily working from an area that is not used for domestic activities, i.e a garage, workshop, or therapy area, business rate charges could apply so it’s best to check with the government’s business rates guidance to see what applies to you.
Lastly, businesses may want to register for intellectual property protection to prevent other businesses from using similar designs, logos, trademarks and patents.
Starting a home business is relatively identical to starting any business. Entrepreneurs must start at the beginning and make sure they have a thoroughly researched idea, and viable business plan. They must also ensure they will be able to work from home, and that they won’t be disadvantaged by doing so.
With more businesses moving into virtual spaces, it makes sense to hire a virtual accountant. At iFinance Department, that’s exactly what we are. We can assist your home based business in all matters of accountancy, CFO services and bookkeeping. Read more about our services, or contact us today to see how we can help you and your new venture.