If you look at most social media adverts from internet marketing experts, it’s not difficult to get caught up in thinking that stating a business is easy and very low cost. Whilst it’s not necessarily untrue that getting your business online can be a minimal outlay, there are many costs that new entrepreneurs don’t consider when they start-up.
In part 1 of this article we are going to look specifically at your potential start-up costs and then in part 2 we will move on to maintenance costs particularly in relation to running your business online.
Start-up costs vary for every business – but they can include:
Premises and associated costs such as utilities, phone and internet charges
IT, office furniture and other equipment such as laptops or PCs, printer, mobile phone
Purchase and storage of stock
Branding, marketing and website development
Business stationery and office supplies
Website development
Postage, travel and transport
Insurance and other professional fees such as legal and accountancy costs
Employee wages and other costs such as National Insurance and pension contributions
Professional development and training for yourself and your employees
The biggest of these operating costs are usually premises (rent and rates) and staff (wages, tax and National Insurance), but even if you are running your business on your own, working from home, many of these costs will still apply.
According to a 2016 article in Money Wise, the average cost of starting a business in the UK is £27,520, according to a survey of 850 small and medium-sized businesses.
The research also highlighted which industries need the most cash to start a business, and which need the least, with leisure proving the most expensive and design the cheapest.
Average amount needed to start a business:
Leisure £79,137
Motoring £64,948
Manufacturing £45,325
Catering £43,608
Legal £37,755
Media £36,912
Architecture & Building £31,368
Fashion and Beauty £30,981
IT £28,473
Arts & Culture £24,332
Engineering £22,406
Professional Services £21,049
Education £19,479
Travel & Transport £18,929
Utilities £17,962
Telecoms £16,375
HR £11,938
Healthcare £11,034
Finance £7,525
Marketing & Communications £6,875
Design £4,425
The research also highlighted:
Regardless of location, nearly one in three SMEs across the country agreed that funding was the biggest challenge they faced when starting out (30%), with over half saying banks are not business friendly (52%).
To raise funds to set up their business, nearly half had to use their own savings (42%), and almost a quarter sought financial help from friends and family (24%).
Once up and running, the average amount borrowed in a 12-month period by UK SMEs was £75,408, with the main reasons cited to buy equipment (40%), or for expansion plans (38%).
Understanding and Managing Your Costs
Even with these amounts, it is wise to overestimate the costs you will need to get your business up and running. Having a contingency in place will help you to cover any unexpected costs that you may incur in your first 12 to 24 months.
Defining your costs when you start your business is essential to helping you become successful. If necessary, getting additional advice from your bank, accountant or business coach/consultant is a good idea.
You will need some kind of budget and cost analysis system in place to help you manage your cash flow and identify when you start turning a profit.
Ideally, your business plan should cover at least the first 12 months of expenditure and ideally more, with projected growth and those potential unexpected costs also accounted for.
It’s often said that new business owners make a choice between sacrificing their time or their money. If you have plenty of time then you can potentially cut costs by doing most of the work yourself. However, if you have access to a significant amount of money when you start up, then you can pay someone else to take care of many tasks for you. Regardless of the type of approach you take, you will still need to manage your costs carefully and with a critical eye.
You should keep your expenditure to a minimum during the first years of operation, so that you can more easily balance your overheads with your expected revenue and allow your business to grow without having to find additional funds for what can be very expensive operating costs. Additionally, once you do get to the point of year-on-year profits, you can start to reinvest into your business once it’s more stable.
Part 1 Conclusion
Whist there are no concrete figures on what it takes to set up your business, as this article shows, it definitely isn’t minimal. Each business is unique, as are the costs involved with starting it. The key lies in preparation. Make a comprehensive list of what you think your outgoings are going to be, ensure you include any associated costs and then add contingency for the unexpected elements that you don’t foresee.
Understanding the costs you are going to incur from the outset, will help you to realistically plan and manage your cashflow more effectively when you start your business.