How to start a small business: the practical first steps

Start with the customer, not the logo

Before registering anything, check that people will pay for what you plan to sell. Talk to potential customers, look at competitors and, where possible, pre-sell or run a small paid test. Many of the searches we see — “what small business should I start”, “small business you can start from home” — come from people at this stage. The best idea is usually one that uses skills you already have and serves customers you can reach cheaply.

Choose a legal structure

• UK: sole trader, partnership or limited company. Sole traders register for Self Assessment with HMRC; companies register with Companies House. See our limited company guide.
• US: sole proprietorship, partnership, LLC or corporation, formed under state law; federal tax guidance is on IRS.gov.
• Canada: sole proprietorship, partnership or corporation, registered provincially or federally; tax guidance is on Canada.ca.
• Australia: sole trader, partnership, company or trust; you may need an ABN, and guidance is on business.gov.au and ato.gov.au.

Each structure has different tax, liability and admin implications. An accountant can help you compare them for your circumstances.

Funding: grants and loans

Searches for “small business start up grants” and “start up loans” are common. Government-backed schemes exist in several countries, but eligibility, amounts and availability change regularly, so rely on official sources: in the UK, the British Business Bank and GOV.UK; in the US, the Small Business Administration (SBA); in Canada, Canada.ca business support pages; in Australia, business.gov.au. Be wary of anyone charging upfront fees to “guarantee” a grant.

Cash flow: the number that keeps you in business

Profit and cash are not the same thing. A business can be profitable on paper and still run out of cash if customers pay late or stock ties up money. Most accounting packages include a cash flow report or forecast showing expected money in and out over the coming weeks. Review it monthly, chase overdue invoices promptly, negotiate sensible payment terms with suppliers, and keep a cash buffer for quiet periods and tax bills.

Setting aside money for tax

One of the most common small business mistakes is spending money that is really owed in tax. A simple habit is to move a percentage of every payment received into a separate savings account reserved for tax. The right percentage depends on your profits, structure and country, so ask an accountant or use official calculators from your tax authority. Many accounting tools show an estimated tax figure that helps you judge how much to set aside.

Insurance and licences

Depending on your work, you may need business insurance (for example public liability, or employers’ liability if you employ staff in the UK, where it is generally a legal requirement) and sector-specific licences or permits. Rules vary by country, region and industry, so check official business support websites and speak to an insurance broker about what your business actually needs.

Pricing your product or service

Pricing is one of the hardest early decisions. Work out the full cost of delivering each sale — materials, your time, software, payment fees, delivery and a share of overheads — then look at what competitors charge and what value customers place on the result. Under-pricing is a common early mistake that is hard to undo. Review prices regularly as your costs and confidence grow.

Get the money side right from day one

Open a separate business bank account, even as a sole trader, so you can see business income and costs clearly. Choose bookkeeping software early — see our accounting software guide — and record every sale and expense with a receipt. Send professional invoices with our free invoice generator, and decide how you will get paid (bank transfer, card, online payments).

Frequently asked questions