How to set up an online business

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    Rachel Wait

    Page written by Rachel Wait. Last reviewed on July 16, 2024. Next review due April 6, 2025.

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      Setting up an online business can be a big decision to make. Although websites can be built cheaply and run from the comfort of your own home, you’ll still need to give some thought to the type of product or service you want to launch, how much demand there is and how you’re going to market your product or service. 

      Here’s everything you need to know about setting up your online business. 

      Why start an online business?

      There are many reasons why you might want to start an online business. Unlike with a bricks and mortar business, you don’t need to worry about leasing a property or budgeting for employee wages. Instead, all you will need initially is a computer, a domain name and a website builder, which can make it a significantly cheaper option.

      Running your business online also means you’re not restricted to one particular location – you can run your business from almost anywhere. You can also sell your product or service to anyone, no matter where they live, which means your customer base might grow each year across the globe.

      What’s more, because your business is based online, you can remain open 24/7. You don’t need to be physically present for sales, so you can keep generating revenue with less involvement.

      How to start your online business

      To help get your online business off the ground, follow the steps below:

      Conduct market research

      Once you’ve come up with an idea for your online business, it’s time to carry out some market research. As a first step, you need to identify your target market, understand their needs and wants and work out how your business will meet those needs. To help you with this, look at some of your competitors and consider how they operate and who their customers are. 

      Then think about whether your target market falls into a particular age bracket and income bracket, as well as their profession, interests and hobbies. 

      By using online questionnaires or focus groups, you can ask members of your target market what they think of your product and website, as well as what you could do to improve it. 

      Write your online business plan

      Next, you need to write an online business plan. This will provide a solid foundation to help you move forward and grow your business. It will also be required when looking for investment in your business.

      Your business plan should include an executive summary that outlines the objectives of your business and gives an overview of how your business will work. You should also include a business description that should explain how you plan to grow the business and who your target market is. 

      It can also be worth adding a section about your competition. This will show that you’ve analysed the market and prove that there is a demand for the product or service you’ll be offering. Explain how your business will stand out from the crowd and how many customers you expect to attract.

      In addition, you’ll want to show how you plan to market and advertise your product or service, as well as include some financial projections. 

      Secure funding for your business

      Once your business plan is in place, you’re ready to seek funding for your business. High street banks are unlikely to fund online startups, but there are plenty of other options to explore if you need some extra cash. For example:

      • A business credit card could enable you to borrow flexibly up to your credit limit. You then pay back this amount in flexible monthly repayments, usually with interest added.
      • You could also ask family or friends if they would be prepared to invest in your business, either through a loan or in return for a stake in your business. This can be cheaper than other borrowing options, but can lead to relationship troubles if things go wrong.
      • A startup loan is a type of business loan that could enable you to borrow up to £25,000, provided you qualify. You’ll receive a lump sum that you then pay back in monthly repayments over a term of up to five years. 
      • Angel investors (or business angels) are high net worth individuals who tend to invest in startups and early stage businesses. In return, they usually receive shares in the company. They also have plenty of experience so can offer their expertise and contacts to help your business grow.
      • Crowdfunding enables you to raise funds from the general public, usually though an online crowdfunding platform. In exchange, your investors usually get a share in the company or a reward. However, your idea will need to be innovative in order to attract the most interest. 

      Build your website

      Your next step is to build your website. If you have the necessary coding knowledge, you can choose to build your website yourself. As well as being a cheaper option, you’ll also retain full control over your website. You’ll need to pay for a domain name and a hosting provider such as Bluehost or HostGator. Plans start from around £2.45 a month.

      Alternatively, you could use a website builder such as Wix or Squarespace. These will guide you through the whole process, helping you to register your domain name and design your website. Prices for these services vary, but you’ll be looking at around £15 to £35 a month for a site that lets you take online payments, depending on your requirements. 

      If you want to go a step further, you could hire a developer to help you build your website. They will also then be on hand if something needs to be fixed or changed. However, this will be the more expensive choice. 

      Comply with online business legal regulations

      As an online business, it’s crucial that you understand the legal regulations you need to comply with. These include:

      General Data Protection Regulation (GDPR)

      Since May 2018, online businesses must ask for consent before they can process customers’ personal data and they must be clear about how they plan to use it. Customers also have the right to access their data when requested and ask for it to be removed.

      Privacy and Electronic Communications (EC Directive) Regulations 2003

      These regulations are related to electronic marketing and the use of cookies. If your website uses cookies, you must inform website visitors that that’s the case and tell them how to turn them off. Your privacy policy must also explain how cookies are being used.

      The Electronic Commerce (EC Directive) Regulations 2002

      If you’re selling something online, these regulations mean that you must:

      • Display your business’ name, address, contact details, company registration number and VAT number on your website
      • Make it easy for users to find the terms and conditions
      • Be transparent about pricing, including taxes and delivery fees
      • Confirm all orders by email
      • Explain that all marketing emails will be clearly identified as such

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

      These regulations replaced the Consumer Protection (Distance Selling) Regulations 2000 and apply to business to consumer (B2C) transactions. Under the regulations, online businesses must give customers 14 days in which to return or cancel orders and a refund must be given. Businesses must also provide clear information about pricing, including VAT and delivery costs.  

      Set up social media channels

      Setting up a social media presence is key to attracting new customers and keeping existing ones engaged. It’s worth thinking about using a combination of Facebook, Twitter, Instagram and YouTube. You could choose to run competitions or giveaways, as well as regularly share links to new products and blog posts. You could even consider paying for adverts to appear in target customers’ feeds. 

      Make sure you include links to your social media profiles on your website. 

      Attract traffic to your online business

      There are many ways you can attract traffic to your online business. One way is through social media, but you should also ensure all website copy is optimised for SEO (Search Engine Optimisation). This will help your copy rank higher on Google so that it reaches more potential customers. 

      You might also want to use pay-per-click (PPC) marketing. This means a link to your website will appear towards the top of a search engine’s results page and you then pay a fee each time a user clicks on that link. Other options include email marketing and affiliate marketing, as well as hiring a PR professional to help increase media coverage for your business and attract new customers. 

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      Written by

      Rachel Wait

      Rachel has been writing about finance and consumer affairs for over a decade, helping people to get to grips with their finances and cut through the jargon. She's written for a range of websites and national newspapers including MoneySuperMarket, Money to the Masses, Forbes UK, and Mail on Sunday. Rachel has covered almost every financial topic, from car insurance and credit cards, to business bank accounts and mortgages.

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