The internet has changed the way we do business for good. All you need to start a business is a laptop, an internet connection, and an idea you’re passionate about.
If you’re looking to start an online business, now could be a great time. Online sales are booming (nearly 28% of all retail sales were made online in 2025), and there are more e-commerce tools and financing options available to help you set up.
In this article, we’ll explain why you might want to consider starting an online business, what to think about before you do, how to set up an online business step by step, common mistakes to avoid, and the types of finance to explore if you need a cash flow boost.
What are the pros and cons of starting an online business?
Thinking of setting up an online business in the UK? Consider these benefits and potential downsides before you do.
Pros | Cons |
|---|
You can work from anywhere with an internet connection, giving you the flexibility to structure your day however you like | Running an online business can blur the lines between work and personal time, which may not suit everyone |
You’re in control of your own decisions, so you can shape your business the way you want | Income can be unpredictable, especially in the early days when sales may be inconsistent |
You can scale your income as you grow, adapting your business to fit your life and financial goals | Meeting customer expectations for speed, convenience, and responsiveness can be challenging |
You can test and expand your business quickly, seeing what works and what doesn’t without huge upfront risks | Not all products or services are suited to selling online |
You can start with little to no upfront costs, keeping overheads low while you find your feet | You’ll need to handle consumer rights that come with online sales, like cancellations and refunds |
You can reach customers all over the world, not just in your local area | Even low-cost online start ups often need investment in marketing or inventory to scale, so you may need to raise funding |
Online businesses can often attract finance more readily than traditional retail, as lenders often see them as scalable – but approval depends on your plan and credit score | |
How to start an online business
Starting an online business is similar to starting a brick-and-mortar business in many ways. But it’s often quicker, cheaper, and easier to get up and running.
1. Choose your business model
E-commerce
If you’re planning to sell products online, you can do it through your own website or social media. It’s a very well developed market, which means there are plenty of marketplaces and website builders with e-commerce features where you can easily sell physical goods or digital products like ebooks or courses. The number of e-commerce users in the UK is forecast to increase to 62.6 million by 2030, so starting an e-commerce business could be a smart move.
Advertising
If you’ve already built an online following, you could earn money by advertising other businesses on your website or social media – using banner ads, affiliate links, or content campaigns. This is a popular choice for content creators and influencers, since it lets you monetise your audience without creating your own products. Spending on advertising in the UK grew to over £46 billion in 2025, so there’s plenty of opportunity for you to earn an income in this space.
Apps and software
If you’ve got a knack for solving problems, designing an app or software could be a lucrative business for you. SaaS (software as a service) tools help businesses become more accessible and efficient. They can automate tasks, free up time, or streamline processes. You could focus on creating products people will pay for regularly, like online security platforms or tools that simplify API data. And with AI making coding more accessible, there’s never been a better time to turn your ideas into reality – just make sure your product offers real value, as the barrier to entry is lower than ever.
Subscriptions
If you’re looking for a model with high profit margins, subscriptions could be the way to go. They often have low maintenance costs, making them a profitable choice. This model can fit into many types of online businesses, like subscriptions for digital products, SaaS, app content, or paid content. You could even sell access to your newsletters.
Service-based business
If you’ve got a skill you can provide online, you can build a business around it. For example, you could offer tutoring in a subject you’re knowledgeable in or consulting services for businesses that need your expertise. Once you’ve built up a strong client base, you could even scale up by launching an agency and hiring employees to help grow your business.
2. Research your market and target audience
The UK had the third largest e-commerce market in the world in 2025, after China and the US. But it’s still important to check there’s demand for what you’re selling – you don’t want to waste time and resources on an idea that doesn’t meet a real need.
Find out what your target audience needs and wants by researching keywords to see what questions people are asking online, using Answer The Public (free) or other paid keyword research tools.
Conduct market research to find out the size of the market, what products/services are already being offered, who your main competitors are, and whether there’s enough demand to sustain your online business.
Analyse competitors to understand how they’re solving customer problems and what makes your business different.
3. Create a business plan
A business plan is a document that outlines your business goals and how you’ll achieve them. It’s essential if you want to secure funding, stay focused, and measure your progress.
Your plan should include the following sections:
Executive summary
Company description
Market analysis
Organisation and management
Products or services
Marketing and sales strategy
Financial projections
Funding request (if relevant)
Appendix
For a step-by-step guide, read our post on how to write a business plan.
4. Officially set up your online business
Once you’ve validated your idea, it’s time to make it official. Choose your business structure (the choice is usually between sole trader vs limited company but you might choose a partnership if you’re setting up with someone). Then register your business as a sole trader (Self Assessment) or with Companies House if forming a limited company – you can register your business through Tide for less than going directly. It’s straightforward and gets you set up quickly.
And when you register through Tide, you’ll automatically get a free business bank account to keep your finances separate from your personal ones. It’s simple to set up and integrates seamlessly with Making Tax Digital.
For more detail, learn how to register a business in the UK.
5. Research and comply with business regulations
Before opening your proverbial doors to visitors, you’ll need to be aware of (and comply with) regulations that impact online businesses in the UK. Ignoring them could lead to penalties, so take the time to get it right from the start.
The following details are correct as of May 2026 but are subject to change. Do your own research before launching your business to make sure you’re fully compliant.
Consumer rights
To comply with UK consumer law, you’ll need to provide clear information before a sale, including your business details, prices (with taxes), delivery costs, and cancellation rights. Note that customers have 14 days to cancel most online purchases without giving a reason. And you’ll need to confirm orders promptly, deliver within 30 days (or as agreed), and handle returns and refunds properly.
Tax and reporting
If your turnover exceeds £90,000, you’ll need to register for VAT with HMRC and charge it on sales, filing quarterly returns. You’re unlikely to hit this threshold when you’re starting out, but you may reach it quickly if your business grows faster than expected – so keep an eye on your turnover.
The new Making Tax Digital system means you’ll need to keep digital records and use compatible software to submit your VAT returns to HMRC.
Digital sales platforms automatically report seller earnings to HMRC if you make over €2,000 or 30 product sales a year (even if sales are charged in pounds – it’s a legacy EU rule), so expect to be asked for your National Insurance number and address. If you’re making regular sales, you’ll also need to pay income tax and National Insurance on your profits.
Data protection
Under UK GDPR and the Data Protection Act 2018, you need to:
Create a privacy policy for your website
Get clear consent from users before collecting their data
Put security measures in place to protect that data
Most website builders include these features so you can comply without too much extra work. But double-check that they meet all legal requirements.
If your business handles personal data (eg customer names, email addresses, or payment details), you’ll also need to register with the Information Commissioner’s Office (ICO), which costs from £40 per year.
Platform-specific rules
If you’re selling on marketplaces like Amazon, you’ll need to comply with their terms as well as the Online Marketplace VAT Rules for reporting seller details.
6. Build your business website or e-commerce platform
An online business needs a good business website. And while setting one up doesn’t have to be a chore, it does need some thoughtful planning.
Setting up your website, domain, hosting, and emails separately can take a lot of work. So consider using Tide’s website builder which combines all these features in one, freeing up time for you to focus on your business.
Whether you’re launching an informational site or an e-commerce store, users will only stay if they find it engaging and useful. So make sure the design delivers a good user experience (eg it’s quick to load and easy to navigate) and the copy’s compelling.
7. Market your online business
Once you launch your online business, the next step is to work hard to build a reputation and boost brand awareness so that you can start attracting people to your new website.
To give people confidence in what you offer, you’ll want to establish yourself as an expert in your field. That could involve sharing valuable content and engaging with potential customers.
The marketing style you choose will depend on your business model and target audience, so research the best channels for your product and niche – whether that’s email marketing, social media marketing, paid advertising, search engine optimisation (SEO), or influencer marketing.
Once you have a steady stream of customers, you can boost your income by focusing on reselling or upselling. Your existing customers can also help you find new business by adding a referral programme to your marketing strategy.
Mistakes to avoid when starting an online business
Starting an online business is mostly straightforward, but it does have its challenges. Here are some common mistakes that can hold you back.
Skipping market research and launching without validating demand
Picking a platform that doesn’t scale, has high fees or lacks mobile support
Neglecting a business plan, leaving you without a clear strategy for costs, pricing or cash flow
Underestimating competition and ignoring how easy it is for buyers to compare options online
Having a slow, cluttered website or confusing checkout, which can cause high cart abandonment
Not raising sufficient finance or underestimating how much it will take to get the business off the ground
Examples of starting an online business
Here are three examples of how different online businesses might get off the ground, based on the steps we’ve covered.
E-commerce business
You launch an online store selling eco-friendly home goods like bamboo kitchenware. You register as a sole trader and open a business bank account to keep your finances separate. You build a website and focus on SEO and social media to attract visitors. A referral programme helps encourage repeat customers.
SaaS business
You create a subscription-based fitness app offering customisable workout plans. You register as a limited company and take out a small business loan to help with development costs. After launching the app, you use influencer partnerships and paid ads on Instagram to market it.
Service-based business
You start an online tutoring business, offering GCSE maths sessions via Zoom. You register as a sole trader and get a business credit card to fund the limited initial start up costs. You build a simple website to showcase your services and use email marketing and SEO to attract students.
Raising finance for an online business
Starting and growing an online business often requires investment, whether it’s for inventory, marketing, or scaling your operations. The good news is there are plenty of finance options tailored to help you get the boost you need.
Business loans: A lump sum you repay over time with interest, ideal for funding big projects like website development or inventory purchases
Start Up Loans: A government-backed loan for new businesses, offering fixed interest rates and repayment terms of 1-5 years, helping you get your online venture off the ground
Business credit card: A flexible way to manage day-to-day expenses, like marketing costs or software subscriptions, with the option to pay in full each month or spread the cost
Wrapping up
Running an online business can be a great way to make a living on your terms, with the flexibility to work from anywhere and scale your income as you grow. And with nearly a third of all shopping done online, now could be the perfect time to get started.
Here’s a reminder of the key points:
The UK’s online business market is booming, with the proportion of sales made online growing steadily each year
Starting an online business comes with benefits like flexibility, low overheads, and global reach
Before you begin, consider challenges like unpredictable income, demand for your product, and legal obligations
Choose a business model that suits your skills and goals, from e-commerce to subscriptions or services
Research your market, create a business plan, and officially set up your business
Build a user-friendly website and market your business effectively to attract and retain customers
Avoid common mistakes like skipping market research or neglecting a business plan
Forming a limited company? Register your company through Tide quickly and securely, for less than doing it directly with Companies House. And if you open a Tide business current account, you’ll get everything you need to get off the ground, including built-in accounting tools, powerful tax tools, and a dedicated savings account.
