How to set up an online business in the UK

Setting up an online business in the UK is an increasingly popular option for both start-ups and established ‘bricks-and-mortar’ retailers. With more consumers than ever before now choosing to shop online, the UK has the largest e-commerce market in Europe and the third largest in the world.

The Coronavirus crisis has further accelerated the shift toward online shopping, even amongst the traditionally reluctant demographics, resulting in e-commerce sales as a proportion of all retail purchases in the UK reaching an all-time high of 22.3% in March 2020.

With minimal start-up costs and the potential to reach consumers all over the world, starting an e-commerce business has obvious appeal. Whilst many physical retail stores will gradually reopen as social distancing restrictions are eased, a return to ‘normal’ is a long way off.

Indeed, many of the changes we’re seeing in shopping preferences and behaviour are predicted to last, leading entrepreneurs and existing businesses to explore innovative ways to sell online, adapt to the changing needs of consumers, and stay relevant during these challenging times.

Whatever your reasons for wanting to set up an online business in the UK, whether you plan to sell on Amazon or through your own e-commerce store, there are a number of important steps you’ll need to take to turn your business idea into a reality.

1. Conduct market research

Conducting market research is an essential first step when starting any kind of business venture. The insight you will gain from this type of research is key to building a solid foundation and maximising your chances of success.

Effective market research will help you to:

• identify your target audience
• determine whether there is demand for your product(s) or service(s)
• identify and evaluate existing competition
• reveal gaps and potential business opportunities in the market
• identify, monitor, and respond to economic shifts and trends
• understand how your potential customer base feels about your products or services
• make informed decisions about product pricing, payment options, and delivery strategies
• establish how your prospective customers shop, how to reach and communicate with them, and how to sell to them
• identify potential problems and minimise the risk of loss
• develop effective marketing and growth strategies
• create a business plan

There is a great deal to learn about the market you’ll be entering before launching your business, but it’s also important to utilise market research as an evaluation tool throughout the life of your business.

By doing so, you will be able to track your progress, monitor competitors and economic trends, and respond to the changing needs and expectations of the consumer.

2. Register your online business

To run a business in the UK, you must officially register a legal business structure. The two most popular options are sole trader and limited company. If you live in the UK, you can choose either structure. If you are a non-UK resident, however, you will need to set up a limited company.

A limited company is generally considered to be the best business structure because it provides a number of unique benefits, including:

• limited personal liability for business debts
• a professional and credible image
• the opportunity to minimise your personal tax liability
• can be set up and owned by one person or multiple individuals
• access to more tax reliefs and allowances

Company formation in the UK is an incredibly straightforward and inexpensive process. Everything is done online, there is no paperwork to sign, and all company registration documents can be provided in digital format, making it an ideal solution for non-UK residents who wish to set up a UK business from overseas.

3. Set up a business bank account

Whether you decide to operate as a sole trader or set up a limited company, you will need a business bank account. Whilst it’s not a legal requirement, we highly recommend that you keep business finances completely separate from your personal finances.

First and foremost, a dedicated business bank account in your company name will provide assurance to customers that your business is legitimate. On a practical level, a separate business bank account will make it much easier to monitor cash flow, identify transactions, and maintain accurate accounting records.

5. Choose how to take payments

If you’re setting up an online business in the UK, you’ll need an electronic payment system to be able to take payments online. There’s a huge selection of third-party payment processors to choose from, such as WorldPay, Stripe, Paypal, Shopify, and SagePay.

There are many factors to consider when deciding on the best payment processing solution for your online business, including fees and pricing options, ease of set-up and management, what cards and types of payments are accepted, and the reputation of the provider.

So it’s important to do your research to ensure the needs of your business will be met now and in the future.

What’s next?

Now that we’ve covered the basic steps required to start an online business in the UK, you’ll hopefully have a better understanding of the initial process and whether it is something which you wish to pursue.

Whilst starting a new business in the current climate may feel highly counter-intuitive, dramatic changes in consumer trends have created an entirely new kind of demand which none of us could have predicted.

Coupled with significant acceleration toward online shopping, the emerging changes in customer preferences and shopping behaviour present a number of commercial opportunities for innovative and determined retailers to close the sales gap through digital offerings.