London is one of the fashion and shopping capitals of the world, so it’s only natural that retail businesses represent a substantial cross-section of London’s economic landscape.
The retail industry today contributes significantly to London’s economy, with the sector accounting for about 40% of all money spent in London and providing approximately 400,000 jobs or 9% of all employment in the metropolitan area. In recent years the city has become much more accessible for small businesses and start-ups, which is why so many small retailers can thrive in the financial capital.
Is Central London right for your retail outlet?
As the focal point for the city’s tourism and a locus for energy and activity, Central London offers tremendous potential for shopping and retail. It is home to many offices, businesses and cultural attractions and well served by rail and Tube transport links. Central London has also been popularised for its distinctive shopping areas like Oxford Street, Soho, Covent Garden and Carnaby Street and is continuing to sprout vibrant new commercial districts. As London’s local accountants, we understand the need for the perfect location for your business and can provide advice on the potential of various locations around our city.
Start with a business plan
To begin with, a formal business plan helps to determine how much money you need to start your business. This should include realistic, well-researched calculations for start-up costs and the monthly operating expenses for your retail outlet.
The plan should also show financial forecasts, as well as how long it will take until your business breaks even. A 5-year Financial Projection of Income and Expenses should be included, detailing the forecasts for the first three years on a monthly basis and then annually in years four and five.
A comprehensive business plan should give you a realistic idea as to how much capital you will need for your business. It proves to the bank or any other lenders that you have considered all of the costs and risks of running the business, and that your start-up is worth the investment. For bespoke advice on the best options for lending capital to start your small business, consult Tax Agility, your local London accountants.
Estimate expenses for your retail outlet
One of the most challenging tasks when beginning a small business in Central London is making a fair, unbiased assessment of your future expenses. Underestimating these can be incredibly dangerous for your business and its long-term prospects, so it is always advisable to be conservative and overestimate rather than underestimate when forecasting your business’s costs.
Unforeseen costs are always likely to arise once the retail outlet opens for business, and no matter how big or small, these items need to be accounted for as they can eat into your revenue over time. Making room for these expenses is the best course of action, and pre-empting unexpected leaks by being as thorough, accurate, and realistic as possible in the planning stages is good practice. When preparing your business plan, you should include a 24-month cash flow budget, and some of the expenses you should include in this are:
- Basic Start-up Costs – This list should include everything that your retail store will need to open the doors and keep them open. Identify every single expense required for the business to run, right down to the toilet paper, then research how much each line item will cost. A typical list will include rent, license and permit fees, store fixtures, inventory, equipment and technology, web hosting, cleaning services, business insurance, advertising and professional services.
- Operating Expenses – These are expenses that maintain the business until it breaks even. Many of these will be included in your initial start-up costs. Most businesses do not make a profit in the first months and for some it can even take years.
- Borrowing Costs – For small business owners, the most likely source of financing comes in the form of a small business loan from a reputable bank or savings institution. These are accompanied by interest repayments which will need to be forecast and accounted for.
If you would like more information regarding the potential expenses your business may incur or require assistance with your plan, Tax Agility is more than capable of providing helpful guidance and insight.
Finding your small business’s niche
Finding your niche should be the first decision you make when starting a shop. Survival in the highly competitive retail industry depends on your business finding a niche in the market and catering to this. If you don’t have your own product to sell, then identifying your target market and selecting the right products for this market is of critical importance.
Ideally, you should be selling a product that you are passionate about, have made yourself, or understand well before committing to setting up a shop. You should also ensure that you’re able to make or order enough product to stock up your shop in order to keep up with sales. This will likely mean looking into outsourcing your production once you start generating enough business.
For a brick-and-mortar store, location is of the utmost importance and can make or break a new retailer. When looking for a commercial property, the retail entrepreneur should make sure that the local area has enough walk-in traffic to sustain the business, otherwise the store will need to make up for this in the form of advertising.
When researching the area, check out any potential competitors nearby, the amount of organic, pedestrian traffic, the cost of the area and whether the premises has sufficient available space. While there are risks when opening a physical storefront, the opportunity for success and profitability is also one of its biggest drawcards.
Having a physical store does not mean you cannot sell online too. If you’d like to know how to make your website work smarter for you, click on the link and have a quick read.
Branding is the paradigm that consolidates your business’s identity. Integrating your shop’s name, the business’s logo, your merchandise, and the store’s aesthetic is an important strategy in any business. As effective branding is vital to the growth and profitability of your store, consider:
- Communicate your business’s personality. Whether your store is high-end or casual, the branding should convey the tone of your business and should make this apparent to your customer.
- Appeal to the tastes of your target audience and represent their values and preferences.
- Guarantee the quality of your product and promise a good shopping experience.
Equipment and utilities
More than likely, your shop will need to be equipped with the necessary equipment for displaying merchandise, as well as a counter, over which you can accept payments. You will also require a till, an Electronic Point of Sale (EPOS) system, and possibly some form of inventory management system, depending on the scale of your operation. These will all contribute to your initial start-up costs and should be included in your expenses and business plan.
To satisfy certain legal requirements, the new shop owner needs to ensure that the business complies with various regulations. The Sale of Goods Act 1979, the Supply of Goods and Services Act 1982 and the Sale and Supply of Goods Act 1994 outline the requirements of retailers and they mainly cover the quality of goods for sale and the accuracy of their descriptions. Moreover, as a business, you will need to adhere to the tax and Value-added tax (VAT) regulations as dictated by HMRC.
Further to this, there are a number of health and safety regulations set out in the Health and Safety at Work Act (HSWA) 1974, Management of Health and Safety at Work Regulations (MHSWR) 1999 and The Reporting of Injuries, Diseases and Dangerous Occurrences Regulations (RIDDOR) 1995. UK businesses are also subject to the European-wide General Data Protection Regulation (GDPR), which limits what they can do with customers’ personal data. For any assistance with the tax regulations outlined here, our specialist start-up accountants can offer bespoke, helpful advice tailored to your business.
Depending on the nature of your retail business, there may be various permits and licences you will need to:
- Sell alcohol or tobacco
- Run a pet shop
- Trade through a street market stall
- Prepare and sell food and drink on your premises
In order to apply for one of these licences, you will need to consult local council authorities to have your business verified and have your licence approved. Running a business without the applicable licence can incur large fines and sanctions for the proprietor.
All businesses need to have insurance to cover various eventualities. For retailers, the most common ones required are:
- Public liability insurance provides coverage for the business in the event that a customer suffers injury, illness or damage as a result of your business and makes a claim against you.
- Product liability insurance provides coverage for the business in the event that a customer claims they have suffered a personal injury or property damage as a result of a product they purchased from your shop.
- Employers’ liability insurance is a legal requirement and covers claims from employees who suffer injury or illness as a result of working for you.
- Equipment cover is applicable for equipment like electronic tills and POS devices, which are expensive. Having them insured in case of damage or theft is a good practice.
You may start by running the business on your own, but as you begin to grow, the business will require staff to share the workload. Further to this, you may need to employ someone with skillsets that can complement yours. For specific services like accounts and bookkeeping, as well as payroll, consider outsourcing them to a trusted local accountant.
How Tax Agility can assist your retail business in Central London
The financial and regulatory requirements of a new start-up can seem daunting to a new entrepreneur. While passion may not be enough to get you through, a competent and trustworthy accountant in London definitely can help.
At Tax Agility, we are trusted accountants for small businesses. We can advise you on important issues such as:
- Assessment of your financial requirements, including advice on finance sources, introductions to banks and helping with the necessary proposals.
- Advise on the most suitable structure for your business – sole trader, partnership or limited company.
- Advice on getting your capital through tax efficient investment structures such as the Enterprise Investment Scheme (“EIS”) and the Seed Enterprise Investment Scheme (“SEIS”).
- Preparation of your business plan, cash-flow projections, budgets, and trading forecasts.
- Completion of registration with Companies House and HMRC.
- Management of company secretarial services.
- Advice on setting-up financial, management and record-keeping systems in compliance with statutory requirements.
Call us today on 020 8108 0090 or use our Online Form to set-up a no-obligation meeting.
This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.
If you liked this article, check out: