By Edward Newman, CEO of Finance.co.uk. Last updated 20th February 2023.
Starting a business with no funding is challenging, but it's possible. With the right approach and some hard work, you can get your business up and running quickly.
In theory, anyone can start a business with no money, and many, many entrepreneurs have done exactly that.
Typically, there are two key parts to successfully launching;
This will help avoid any cashflow issues and limit any initial risks.
The easiest business to start with no money will depend on your skills and resources.
If you’re a skilled writer, graphic designer or web developer, you could offer your services to clients on a freelance basis. This allows you to work to your own schedule and build a client base without having to invest in a costly physical office or staff.
Another option is to start a business that uses your car or even a spare room in your home, to create income. For example, you could start a ride-sharing business or rent out an extra bedroom to paying guests.
Once you have your business idea, you will need to take a few important steps.
Firstly, decide on the business structure you would like to use, and register your business. In the UK, the most common business structures are a sole trader, a partnership, and a limited company. Each structure has its own legal and tax implications, so it is important to choose the right one for your business.
As a sole trader, you will be “self employed”, this means you’re solely responsible for all legal requirements of the business. It doesn’t mean you need to work alone, however, because sole traders can also employ staff.
You will need to register with HM Revenue & Customs (HMRC) when you first launch your business and file an annual self-assessment tax return.
You will need to pay income tax and national insurance based on your profits, and crucially, you are responsible (and liable to pay back) any debts accrued by the business.
In a partnership business structure, each partner shares responsibility for managing the company, full liability and any profits generated by the business. One partner, known as the nominated partner, will be responsible for the tax returns and bookkeeping of the company.
A partner could be an individual or a limited company for example, because they also count as a legal person.
In an LLP (Limited Liability Partnership), two (or more) partners are responsible for filing the company accounts. The business structure has more similarities to a limited company, in that partners are limited in terms of their liabilities, protecting their assets. Liability is limited to any monies they have invested in the company and any personal loan guarantees from generating funds to start or maintain the business.
Creating a limited company involves incorporating your business with companies house, and paying an application fee.
While this is not ideal for people considering starting a business with no money, it has some longer term benefits which should be considered.
The liability of directors and shareholders (meaning any owners of company stock) is limited to any money they originally invested in the business. Your personal assets and estate are not considered part of the business. That means they won’t be used to offset any debts that may need to be recovered in the future, should any issues arise.
To get direct investment to start or grow a small business in the UK, you will need to create a business plan that outlines the key details of your business, including its products or services, target market, financial projections, and growth potential.
This will help you to clearly communicate your vision to potential investors and convince them to invest.
Next, you will need to identify potential investors and reach out to them to pitch your business idea.
This can be done through networking events, online platforms, or by contacting investors directly. You will want to make sure that the investors you approach are a good fit for your business and have the resources and expertise to help you succeed.
Once you have identified potential investors, you will need to negotiate the terms of the investment, including the amount of funding being offered, the equity stake being given up, and the rights and responsibilities of the investors and the business.
It’s important to carefully consider these terms and seek the advice of a legal professional before agreeing to any investment.
The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are UK government programs designed to help small, high-risk companies raise capital by offering tax relief to investors who invest in these companies.
Under the EIS and SEIS, investors can receive tax relief on investments they make in qualifying companies. This means that investors can reduce the amount of income tax they owe on their investment, making it more attractive to invest in high-risk companies.
To qualify for EIS or SEIS funding, a company must be a small, unlisted trading company that is not a subsidiary of another company.The company must also be based in the UK and must not have been trading for more than 7 years.
If a company qualifies for EIS or SEIS funding, it can issue shares to investors and offer them tax relief on their investment.
The amount of tax relief an investor can receive depends on the type of investment and the amount invested;
If you need a small amount to get your business started, a loan might be a viable option, rather than giving up any equity to raise funds.
Before applying for a business loan, you will need to consider your options carefully. Think about how much you would like to borrow, how this will be paid back and how long you’d like to borrow for.
You can find out how much you can borrow via a comparison site, broker or directly via a lender or high street bank. Always make sure you compare loan providers to find the best rates before applying.
If your application is approved, the lender will give you the money and you'll be responsible for repaying the loan according to the terms you agreed on. This will involve making regular payments and paying interest on the loan.
The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.