How to Start an Online Business: Everything You Need to Know

10-step plan to start your own online business.

Updated: May 20, 2024
Matt Crabtree

Written By

Matt Crabtree

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Do you long for the freedom of being your own boss, but are worried about the costs involved in starting your own business? 

Perhaps a successful online business is the best option for you. Run your own business from the comfort of your home with minimal start-up costs as you do not need premises. 

What you do need is a clear business idea and a great marketing strategy to pull customers to your website.

In this article, we will provide you with everything you need to know to start your own business and follow our key 10-step plan to start your own online business.

What Is an Online Business?

An online business is a business that is operated 100% online.

You advertise through a website and use your website as your shopfront, informing customers what products you have to offer and sell online. It can also be known as an ecommerce business.

Your customers can buy the products they want through the website, making a purchase through a debit or credit card transaction. Services such as Google Pay, Apple Pay or PayPal may also be used. 

What Are the Advantages of Starting an Online Business?

An online business can have fewer costs yet can reach potential customers all over the world.

Online businesses have taken over from bricks and mortar businesses many years ago and are not the most used shopping method in many parts of the world. 

The UK had nearly 60 million ecommerce users as of 2023, and this figure is expected to grow to over 62 million ecommerce users by 2025.

UK E-commerce Users
Image: Statista

The number of new e-commerce businesses in the UK is also growing, with a 43% increase in registered businesses.

New E-commerce Companies UK
Image: Your Ecommerce Accountant

Here are the dominant advantages of starting an online business:

1. Fewer Overheads

One of the biggest worries as a business owner is the costs involved and the stress of paying those costs when your sales revenue is low. However, when running an online business, you will have fewer overheads to pay. 

You may not need premises and the associated costs, such as utilities, that come with using premises. You could also require fewer or zero employees as there is less pressure to serve customers at that moment like there is in store. You can deal with each customer’s purchase or enquiry at your own speed.

2. Automation

When operating 100% online, you can integrate other features of running a business. 

For example, you can integrate accounting software into your system so that all purchases and sales are automatically recorded. Your costs and taxes can also be automated, requiring you to complete little admin work. You can also keep your accountancy costs low.

3. Global Reach

When you run a business in a bricks and mortar store, generally the customer will need to see your store and then enter your store to assess whether they will make a purchase. This limits the amount and type of customers you could attract to your store.

An online business possesses global reach, meaning that any customer in any location across the world can see what products you have to offer and then make a quick purchase. 

You could gain a vast number of customers as long as your website uses optimised content and attracts traffic.

What Are the Disadvantages of Starting an Online Business?

Whilst starting an online business may offer you some potential advantages, there are some disadvantages and limitations to watch out for.

1. High Competition

Many online businesses have high competition for customers and sales, resulting in many failures. 8 out of 10 online businesses fail within its first 2 years, reportedly due to a lack of patience.

Lack of Patience
Image: Business2Community

To stand out from the competition, online businesses need to have an excellent website that pays attention to SEO, utilises optimised content, and focuses on high traffic. These techniques will help your website appear near the top of search engine result pages.

2. Lower Profit Margins

Many customers search the internet for low prices and fast delivery. As a result, an online business may need to slash prices to make sales. This will negatively impact your profits, although can be addressed by selling high volumes of products.

3. Negative Reviews

Customer reviews are a significant part of online businesses. If you receive positive reviews, they can help your own brand awareness and subsequent sales. 

However, if you receive negative reviews, your potential sales could be damaged. Negative reviews may also affect your own mental health and self-esteem. 

Therefore, it is important to become resilient and realise that not every customer will be happy, ensuring that negative reviews do not upset you.

Are There Different Types of E-commerce Business?

There are typically four types of e-commerce business that you could use in your business model.

These are:

  • B2B — a business-to-business model involves selling goods or services to other businesses, for example selling wholesale products.
  • B2C — a business-to-consumer model that involves selling goods or services to individual customers and is a traditional form of business.
  • C2B — a consumer-to-business model incorporates a consumer selling products or services to a business, for example, an affiliate offering online exposure for another business in exchange for a fee.
  • C2C — a consumer-to-consumer model utilises the sale of products to another consumer, for example through Facebook Marketplace.

How Can I Write a Business Plan?

Write a business plan by following these easy steps:

1. Business Idea

Explain the online business idea you have for the business and any relevant history to this point. What expertise do you have in this field to support online business ideas? 

Why do you think this business idea would work? Why is your product or service different from other products and services offered by other businesses?

Also, explain the structure of your business and why. Are you establishing a sole trader business, a partnership or a limited company?

2. Business Aims and Objectives

You will need to set clear business aims and objectives inside of your business plan. Consider your vision for the business and where you see the business heading in 12 months and 5 years.

3. The Market

Which market segments are you competing in? What is your ideal market share? Consider your research in this area, focusing on trends, market growth, and different customer preferences.

Who is your target customer? Who are your competitors? Consider the advantages and disadvantages of your business in comparison to your competitors. Try not to criticise the competition, however.

In your opinion, where do you position your product or service in the market? Are you offering a lower quality for a lower price or a higher quality for a higher price? Do you have a unique selling point to offer the customer?

4. Sales Strategy

What pricing strategies are used by your competitors? What pricing strategy should you employ? What sales channels will you use in your business? Is your chosen sales channel cost-effective?

5. Marketing and Promotions

Think about the marketing and promotion strategies you will use in your business and explain the reasons behind each one. Will you use direct marketing or indirect marketing? Will you employ a PR service or complete the marketing and promotion activities yourself?

6. Personnel

Explore the recruitment and training processes you will use in your new business and justify the workforce ratio you will use. What pay levels will you adopt? Also, explain your own past work history and the work history of any management in place in the business.

7. Operations

If you are planning to start an online business, explain this in your business plan. Ensure you mention why you are going to operate an online business and the benefits this will bring you, such as lower overhead costs.

8. SWOT Analysis

A SWOT analysis explains the strengths, weaknesses, opportunities and threats of the business. You should think outside of the box in this section, considering increased demands, competitor bankruptcy, and problems in the UK economy.

9. Financials

A significant part of your business plan is the financial forecasts, which predict the money that will flow into and out of your business. 

Your forecasts must be realistic and accurate, breaking down predicted sales along with the profit margin and gross profit projections. You should include your financials at the end of the business plan.

Provide a list of projected costs, estimated profit and loss accounts and balance sheets. You should also include a detailed cash flow forecast and explain what contingency funds you will have.

Why Is a Business Plan Important?

A business plan for an online business is important as you can plan out your business idea clearly, checking whether you have thought of everything. 

You can identify any problems and consider how each problem can be addressed, working out how much money you will need in start-up costs

You can also use your business plan to secure a business loan or additional investment. Some businesses will need to apply for unsecured business loans or long-term business loans from loan brokers.

Remember to keep your plan short and to the point, ensuring there are no spelling mistakes or grammatical errors. 

However, do not make your business plan too optimistic as it may be seen as an unrealistic business plan. You must be realistic and aim for good credibility at all times.

How Can I Register an Online Business?

To register your online small business, you will need to consider your business structure. A sole trader or a partnership business should register an online small business with HMRC, filing Self-Assessment tax returns annually.

If you are setting up a limited company, you should also register the business with Companies House. VAT registration is also required. 

How Can I Set up an Online Store?

Set up your own online store by using a specialised platform such as Square Online.

Square Online is used as a store to sell online to customers, ship orders, or organise local collections. Your online store is created quickly, with Square Online’s site builder helping you every step of the way.

There is no monthly fee to pay when using Square Online as your online store. However, when you make a sale, you will be charged 1.4% plus 25p for European card transactions or 2.5% plus 25p for non-European card transactions.

Additional features can be added to your online store, such as professional branding options and advanced site customisation. However, a fee of £20 per month is required for the Plus subscription.

You could subscribe to Square Online’s Premium plan for £64 per month to achieve a 10p discount on both European and non-European card transactions when you make a sale.

Starting an Online Business Pros and Cons

Check out this section for a quick review of the pros and cons of setting up your own online business:

Pros

✔️ Own boss — you are your own boss and can choose your own online business model and target audience.

✔️ Lower overheads — you will have fewer costs to pay out as there will be no premises costs and other overheads.

✔️ Automated integration — integrate other software features to aid automation in your business, such as automated bookkeeping.

✔️ Worldwide customers — reach customers from around the world, gaining global reach.

Cons

❌️ Competition — there are many different online stores on the internet so you will face tougher competition to stand out.

❌️ Negative reviews — customers can leave negative reviews that will then be read by other potential customers.

❌️ Prices — the higher competition may mean that you need to lower prices and decrease your own profit margin.

❌️ Lack of social interaction — working online every day can lead to a lack of social interaction.

How to Start an Online Business in 10 Steps

If you are ready to start an online business, follow these simple steps today:

1. Business Idea

Your business idea is the bedrock of your online business. It is the purpose of your business and the reason why you are involved in e-commerce.

Most budding entrepreneurs already have a clear business idea before they start to set up their online business. 

Perhaps you have invented a new product so an everyday task can be completed easier? Or, maybe you want to customise vintage clothing to sell to new customers? You could conduct a dropshipping business to sell products you have not actually bought yet.

Whatever your business idea, a clear need in the market is required so you can stand out from the crowd. 

Perhaps you can offer a higher quality standard, a lower selling price, or the fastest delivery? You need to give the customer a reason to choose to buy products from your business.

If you are lacking inspiration for a business idea, consider your own experiences as a customer. Have you ever come across a product or service that you thought could be done better? Ask your friends and family if they have any experiences or ideas that could help you.

2. Market Research

Market research simply involves researching the market. What other businesses are offering the same products or services as you? How much do they charge? Is their business successful?

Research how many competitors you will have. If you were opening a traditional bricks-and-mortar store, you could just visit the local area and see what shops are located there. However, with online businesses, your competition is global.

Search online for businesses offering similar products and services and read their reviews. What do their previous customers think of the business? Ask other people what they think of the competition in contrast to your proposed business idea.

Next, consider who your target customer base is. This means which type of customer would probably purchase your products. Consider demographics such as age, sex, typical income, location, and interests.

3. Business Model

The next step is to clarify your business model. If you are going to start an online business, you will be utilising an e-commerce business model. This means that you will be selling products or services online to make money from the sales made.

However, not all online businesses involve selling products or services. You could operate an advertising business that involves other businesses paying you to advertise online through adverts or other content. Greater volumes of traffic will result in greater profits.

You could operate a fremium business model, allowing anyone to access a free version of your online product or service. The aim of this is to entice the customer to want additional features and, therefore, pay an amount to access them. This is usually a one-off cost.

A further business model is the subscription model. Similar to the fremium model, you allow the customer to access an online product or service. However, they will then be charged a regular subscription if they want to enhance their experience with additional features.

The exact business model you use in your new online business will vary depending on the type of business you are aiming to operate.

4. Business Plan

Every start-up business needs a plan. A business plan will help you to put together all of your market research findings and evaluation of competitors, setting the necessary business aims and objectives for your new business. 

You can also determine through your business plan if any employees are required, and what you need to be a success.

5. Legal Regulations

When starting an online business, remember to abide by all necessary legal regulations.

These include:

General Data Protection Regulation (GDPR)

The Data Protection Act 2018 stipulates that UK GDPR must be followed. This covers the personal information of a customer, ensuring that you handle their data responsibly and correctly.

Consumer Rights Act

The customer possesses certain rights which are protected by the Consumer Rights Act. When describing products, you must provide an accurate description so that the customer is not misled.

In addition, a clear returns policy is required. You must make sure it is clear what policy is in place, such as allowing 30 days from the day of purchase for a customer to receive a full refund if the product is faulty.

Electronic Commerce (EC Directive) Regulations 2002

The Electronic Commerce Regulations stipulate that you should clearly show a set of information on your website for the benefit of the customer. 

This includes the name of your business, your registered address and email address, and your company registration number. 

You must include any memberships and associations to trade or professional associations. Additionally, if you are VAT registered, you should also include your VAT number.

Privacy and Electronic (PECR) Regulations 

Privacy and Electronic Regulations protect the rights of the customer in regards to electronic communications such as using email marketing or cookies on your website.

Cookies track website activity for marketing or analytic purposes. You must ensure a cookie policy is in place on your website to make it clear why the website is using them, the type of cookies that are used, and the additional information about third parties using the data.

Web Content and Accessibility Guidelines

You must ensure that reasonable adjustments have been made so that your website is fully accessible to all. 

Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013

You must make your terms and conditions clear to the customer and clearly display delivery options along with associated costs. 

Your products or services must be described accurately and must be delivered within 30 days unless a different delivery date was specified previously. 

Furthermore, customers have the right to cancel and must be informed of this. They should have 14 days to cancel, although there are exceptions to this.

Payment Card Industry Data Security Standard (PCI DSS)

When operating an online business, you will be paid by customers using credit and debit cards or a provider such as PayPal. However, you must ensure that your business and the customer are fully protected when transactions are made.

The Payment Card Industry Security Standard helps to protect when a transaction is made and provides the customer with confidence when purchasing from your website. 

Failing to comply with this standard could result in data breaches and subsequent fines for your business.

You should also incorporate Payment Service Directive 2 (PSD2) into your website, improving security when a customer makes a purchase. This requires Strong Customer Authentication, or two-factor authentication, which rigidly helps to prevent fraud.

6. Registering Your Online Business

It is essential to register your business with HMRC. However, you need to be aware of your business structure to ensure you register your startup business correctly.

Sole Trader

A sole trader business involves a business where an individual is self-employed and is responsible for all debts and liabilities. Likewise, the individual is also able to keep all of the profits made by the business.

If you start a sole trader business, register with HMRC as self-employed. You must maintain business records of all money spent and earned by the business so you can file an annual self-employed tax return. You must earn over £1,000 during your first year of trading to qualify.

Your annual self-employed tax return will calculate how much tax you need to pay each year. However, you must also pay Class 2 and Class 4 National Insurance.

Depending on the turnover achieved by your business, you may need to pay VAT. In 2024, you must register for and pay VAT if your turnover is over £85,000 per year.

Partnerships

A partnership is a business with two or more owners. Each business owner is jointly responsible for all debts and liabilities and are jointly entitled to shared profits. 

When registering your partnership with HMRC, you must choose a nominated partner who will be responsible for managing business records and tax returns. However, each partner must also file individual tax returns with HMRC.

Additionally, you will need to register and pay for VAT if your annual turnover exceeds £85,000.

Limited Company

A limited company is a business which provides limited liability for its owners. This means that the finances of the business owners are kept separate from the business.

The business is its own entity and an owner of a limited company is not liable for business debts. You must register your business with Companies House as well as with HMRC. It is vital that you maintain business records and keep an official address for your company.

You will need to pay corporation tax as a limited company, which is a tax payable on taxable profits. Corporation tax in the UK is currently 25% if you earn at least £250,000 per year in taxable profits. 

If you earn less than this amount but more than £50,000 per year, you will receive marginal relief which is a reduced rate of Corporation Tax between 19% and 25%.

You will not pay Corporation Tax as a small business if your annual turnover is below £50,000.

7. Website Building

When you are just starting out on your business venture, look for a website builder that you can use for little cost, such as a low monthly subscription. Additionally, you can purchase a domain name for just a few pounds per year.

A website builder is easy to use and will provide you with the required tools. A popular all-round website builder is Wix, with subscription prices costing as little as £7.50 per month.

For more options to add to your subscription, GoDaddy is a popular choice. As well as websites and hosting options, you can incorporate domain name, email and marketing services for a complete service.

For example, Square Online is perfect for new e-commerce businesses, allowing you to start selling online for free.

If you do not want to use a website builder, you could hire a developer to complete the website for you.

A developer will cost a significant sum, although you could achieve a professional and unique website, customised to the needs and requirements of your business. 

Another option is to build the website yourself, although you will need to sufficiently understand coding. If you do have this ability, you could save your new business some money by building the website yourself.

Security

With over 40 million UK adults targeted by scammers, security is of paramount importance for all e-commerce businesses. Strong anti-fraud measures are needed as well as cybersecurity measures. This includes offering secure payment methods.

8. Optimised Content

Flooding your new website with optimised content is essential. Just because you have a fully developed website, does not mean that traffic will flow into your business. 

Optimised content attracts traffic to your website which ensures that your business becomes well-known.

All content you use inside of your website must be written clearly in a professional manner. You must use SEO techniques so that your content ranks higher on Google. 

This will mean more customers will see your website and business, enticing customers to click on your web page.

SEO involves utilising keywords in a high volume across your website, incorporating gained backlinks and providing readable text.

A blog is a good addition to any website and can add a content stream to almost any online business. For example, if you are selling customised, vintage clothing, your blog could discuss current and predicted fashion trends as well as trends from the past.

This type of blog helps the customer to know that you are an expert in your field, remaining a visitor to your website for a longer period. Furthermore, more content on your website can lead to higher rankings on Google.

9. Marketing

The best marketing strategy for online businesses is to use social media. A strong presence on social media attracts customers to your business from across the world. 

Additionally, social media marketing is a free tool and can take many forms with millions of users. Market your business on Facebook, Instagram, Twitter X, YouTube, and Pinterest. 

However, it is important to respond quickly to any comments you receive on social media, making the customer feel as though they are important to your business. 

Each social media platform could advertise your business and promote competitions and regular reviews of your products and services. Create a shareable hashtag and start a viral frenzy, or employ influencer marketing. However, remember to post regularly to remain an active presence.

10. Traffic

Attracting traffic to your website means that more people are visiting your website and are aware of your business and your products or services. 

One way to do this is to optimise your content and embed SEO techniques into your text. However, there are additional methods you can utilise to increase traffic.

Emails

Email marketing is a direct method you can use to target the customer. The customer will receive regular emails and newsletters to engage them with your brand and let them know what offers are currently available. 

Emails can be accessed by asking customers to sign-up online when making a purchase, or by asking for an email address.

Pay-Per-Click

When utilising a pay-per-click strategy, a search engine will place your website link at the top of a search results page. Every time a user clicks your link, you pay a fee to a search engine. A well-known example is Google Ads.

This is a fast way to increase traffic to your website although it may cost you a substantial amount of money over time.

Affiliates

Placing advertisements on other affiliate websites can be a free marketing tool. Potential customers can click on your advertisements to take them through to your website. This may not be as effective as a pay-per-click strategy, but it will save you money.

Final Thoughts

Operating an online business from your own website allows you the freedom and creativity to tailor the business strategy. You can choose what to sell and where to sell it, creating your own business website as your modern store that can reach all corners of the world. 

There is a lot of money to be made from e-commerce. However, you need the right online business ideas, a unique selling point to beat the competition, and the perseverance to make your online business a success.

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