Starting Your Business Online

The internet has changed the way business is done across the globe. With a potential customer base of 875 million active internet shoppers, small businesses can't afford to ignore e-business. If you don't offer potential customers the option of paying online, you can be sure your competitors will.

Despite the credit crunch, retail spend online is still increasing dramatically year-on-year - and yet many businesses still aren't harnessing the full potential of the internet.

Customer baseInternet business - the key advantages

• Internet spending is predicted to account for 40% of all retail sales by 2020
• 84% of the world's internet users now shop online
• Your business can be found by customers worldwide, 24/7
• E-business is ideal for selling rare or niche products - with no geographical limitations you can target small sectors

Profitable

• The internet is the ideal place for small or start-up businesses to grow, with no need to compete on high street premises or corporate offices
• Which helps to make it profitable! Of online SMEs, 90% found the internet a profitable place to trade.

Low overheads

• Many retailers start their online business from their own homes, reducing overhead costs faced by traditional offline businesses (rent, insurance, office equipment and so on)
• Set-up costs for an online business are around 40% lower than most SMEs believed they'd have to spend, according to 2007 surveys

So you get to keep more of the money you make.

And it's rewarding

Setting up an online business can also be immensely enjoyable and rewarding - you get to be your own boss, do something you enjoy and work from home. And since online business works 24/7 you could even run it in your spare time while you're getting going.

How do internet businesses work?

Behind the scenes of an e-business there's a lot of technology going on. To start an online business you won't need to worry about most of this, but it's worth getting to grips with the basics.

An e-business offers customers the option of paying for their goods or services on the internet. Many businesses which traditionally accept payments in a high street store, by telephone or by mail order have realised the benefit - and ease - of adapting their business for e-commerce.

Enabling your customers to make a payment online involves a more sophisticated kind of website than one that is for information only. But it makes your business more attractive to customers who prefer to pay online, wherever in the world they are.

What do I need to do?

Setting up an e-business need not be complicated or costly, even if you have little or no expertise. You'll need three basic things:

• A website that allows shoppers to select the products or services they want to buy. For small businesses with no website experience, using an 'off the shelf' website you can customise yourself is a low cost option
• To connect the website to a Payment Gateway. Once connected to your website this service securely sends online payments for authorisation
• A Merchant Account, which is a bank account specifically for the funds you accept online and is completely separate from your normal business bank account.

Putting your e-business together

Anyone familiar with online shopping (and that's around 80% of the UK population) knows that making a purchase online is normally pretty simple. Shoppers add the goods or services they want to buy to a shopping cart, check out when they are ready to pay and then enter their payment details.

Of course the underlying technology is not so simple. You won't need to understand the technical detail of how an e-payment is processed, but it's worth getting to grips with the basics: How does your website link to the payment processor ? How do you get your hands on your online trading profit?

Here's how it works:

1. Shopping cart: the online shopper adds purchase items to a shopping cart, effectively the online equivalent of a high street store shopping basket. It's worth noting that some websites don't choose to include a shopping cart - for example if they sell only one product.
2. Checkout: When ready to pay, the shopper heads to checkout. Product information in their shopping cart generates what is called a 'purchase description' that is sent to a Payment Gateway - such as WorldPay - to securely process the payment.
3. Payment Gateway: The shopper is directed to the Payment Gateway where they choose a payment method and enter payment details.
4. Transaction: The Payment Gateway pairs the shopper's payment details with the purchase description from the shopping cart to produce a 'transaction'.
5. Authorisation: The Payment Gateway encrypts and sends transaction details to the shopper's card issuer for authorisation. Card issuer authorises or declines the transaction.
6. Confirmation: The Payment Gateway notifies the shopper and the e-business that the order has been completed - normally via a confirmation screen and an email.
7. Merchant Account: The Payment Gateway receives the purchase amount from the shopper's card issuer, and sends it to the business's Merchant Account. This can take 1-2 days.
8. Bank account: From the Merchant Account, the funds are paid into the business's standard bank account, normally with a short delay that's specified by the Merchant Account provider.

Cutting through the jargon

Internet business is like everything else - a bit daunting if you don't know the terminology. So here's our guide to some of the terms you're likely to come across.

Internet business jargon - a short guide

Acquirer / Acquiring bank: this bank provides you with a Merchant Account specially for e-commerce payments. Not all banks are acquiring banks, so you may have a business account with one bank, and a Merchant Account with another. WorldPay can provide you with a Merchant Account alongside payment processing.

Card Issuer: the card issuer provides payment cards for shoppers. When a shopper pays at your online store, their card issuer has to authorise the payment.

CNP - Cardholder Not Present: this is when the payment card is not seen by the merchant and includes all online transactions as well as transactions by phone, mail order or fax.

Domain Name: this is your address on the internet. It's the way people find your online business, so having a domain name your customers can remember is really important.

Host/Hosting: a web host is a company you can pay to maintain your website on a web server. And a web server is basically an internet space for your e-business, which means that it can be found 24/7. You can host your website yourself if you have the right resources.

IP Address: your Internet Protocol (IP) Address is the unique number that identifies every computer connected to the internet. When your web browser or email application requests a web page, it's the address other computers will email the information to.

Internet Service Provider: the company that gives you access to the internet and may also host your web pages.

Merchant Account: A Merchant Account is specifically for accepting payments online - you can't trade on the internet without one. 

Mail and Telephone Order (MOTO) Payment Service: this allows businesses to take order and card details over the phone or by post. WorldPay provides a simple online MOTO form you can use.

Payment Service Provider: to ensure that your customers' details are kept safe, this service provides secure links between your website, your acquiring bank and card issuers.

Pay-per-click advertising: online advertising is there to bring customers to your e-business. With pay-per-click you'll be charged an agreed amount every time a user clicks through to your website from one of your online ads.

Search Engine: this provides access to a searchable database of website addresses and descriptions. Google is the most popular, with 90% of UK internet searches.

Search Engine Optimisation (SEO): this is how you get more visitors to your website who are likely to buy something from among search engine users looking for particular keywords and phrases.

Storebuilder/Shopping cart: this software lets you create an e-shopfront which acts as the site's virtual shopping cart, catalogue and ordering system. You can buy it 'off the shelf' or get it custom built for your business. Storebuilders can let you do everything from designing the look and feel of your website, stock control and delivering goods.

E-business success - top tips

To make your online business a success, some things can make all the difference. We know what works for our successful internet business customers - here's what they've told us:

• Plan: care at the planning stage - such as carrying out basic market research - makes your success more likely later on. More information at Before you start.
• Get your website found: lots of new online businesses don't think about how potential customers are going to find their website. It's not rocket science, but you need to know where to start. More information at Online promotion.
• Tackle fraud: if cardholders have their card details used at your web shop without their permission, you will be responsible for refunding them - plus if you've already shipped the goods to a fraudster, you'll loose the value of these too. As a result, you have to protect your internet business from fraud. More information at Fraud prevention.
• Look after your e-customers: when you aren't face to face with your customers, the customer experience is even more crucial. Internet businesses really need to communicate with their customers and be realistic about delivery time-scales. More information at Customer service for e-business.
• Website usability and content: if they can't find what they're looking for, they won't hang around. First impressions are vital on the internet too, and keeping your content fresh and accurate will encourage customers to return. More information at Creating a great website.