How Much Does It Cost to Start a Business?
Many people have dreams of starting a business, but few actually take the leap. One possible explanation for this is the uncertainty surrounding how much it actually costs to start a business. Lloyds Bank estimates that the average cost of starting a new business is £12,000, but obviously, the exact costs will vary greatly depending on the product or service your business will provide, how many people you will employ, and countless other factors.
If you have never started a business before it can be difficult to imagine all the various kinds of costs you will accrue. Luckily, many startup costs categories are common to many kinds of businesses. In this article, we will attempt to outline some of these main categories so that when you begin your business plan, you will have a template for calculating your costs.
Seeking Out Advisors
In the UK, 20% of new businesses fail within their first year of operation. This number rises to 60% in the first three years. In many cases, these failures come down to simple mistakes with pricing, staffing, or marketing that could have been avoided if the founders had benefitted from experienced advisors.
Business advisors are by no means a mandatory startup cost. However, it is an investment that is almost guaranteed to offer a solid ROI. Advisors can save you years of trial and error by helping you get crucial aspects of business management correct from the start.
Examples of possible advisors include experienced accountants, lawyers, and executives. Sometimes one visit with an advisor is enough, but in many cases, it makes sense to pay a retaining fee so that you can come back for advice whenever you need it.
Registering Your Business
Depending on the business structure you register with HMRC you might be asked to pay a filing fee before your business is incorporated. For limited companies, this fee is only £12 if the process is done directly through Companies House.
However, many business owners choose to use third-party services or agents when completing the process. This method offers the peace of mind that an expert has taken care of all the paperwork but comes at a higher cost. These services usually begin at £10, but certain packages can cost upwards of £200.
At these higher prices, many services will let you register your company address at their offices to avoid being required to enter your residential address on publicly available records.
Employee wages are a startup cost that almost entirely depends on individual business characteristics. If you are establishing yourself as a freelance graphic designer are prepared to forgo a wage initially you might be able to ignore this category of costs. If you are founding a cybersecurity firm that will employ a dozen developers, wages might make up a considerable portion of your startup costs.
Marketing and Advertising Expenses
When starting a new business, marketing should be at the forefront of your mind. Unless you already have a dedicated customer base, your first months (or even years) will likely be devoted to attracting enough customers to turn a profit. This will come at a cost.
If you have some extra money in your budget and would prefer to outsource your marketing strategy there are a number of firms and services that will take care of every aspect of the process, from developing ads to writing product descriptions. While this option is the most expensive, you can rest easy knowing that you are in the care of experts.
If saving money is important to you, there are several cheaper options for effective marketing that you could employ. If you have the time, learning the basics of marketing through classes, books, or mentors and developing a strategy yourself is a fantastic (and cheap) option for the frugal entrepreneur.
Alternatively, hiring a freelance marketing consultant is a great middle-ground in terms of expense, which offers all the benefits that come with expertise and none of the commitment of hiring a full-time employee.
Finding Space for Your Business
The physical space that your business occupies will likely come with costs that bear consideration whether you are working from home or an office.
Many people mistakenly view working from home as a free option. While it certainly is cheaper than leasing an office, working from home might entail costs such as office furniture, high-speed internet, or an increased electricity bill.
If you decide that an office or storefront is the best route to success, you have a few options when it comes to obtaining one. The first is to buy one outright, but this requires a considerable amount of capital and commitment.
The second (more common) option is to lease one. Leasing a commercial space comes with many of the same costs as leasing a residential space. These include regular payments, deposits, and insurance. However, the structure of these costs might differ from their counterparts in the residential sector. For example, commercial leases typically require quarterly payments rather than monthly payments. This means that you will need to make cash flow plans that allow for additional resources every three months.
Joining a co-working space could be a great alternative for an entrepreneur who wants the professional and collaborative atmosphere of an office without the commitment of a lease. Most major cities will have many options to choose from when it comes to finding the perfect co-working space for you.
Finally, you might need to consider the costs of storing products when calculating startup costs. Warehouses, storage units, or even your garage are viable options, but you will require storage it needs to be included among your costs.
Another category of cost that bears consideration is insurance. Like wages, the costs arising from insurance will vary greatly from business to business. Regardless, most industries will have insurance requirements, and even in those that do not insurance is often a smart decision. Take your time when researching policies to find a balance of cost and coverage that works for you.
If your business sells or manufactures a physical product, the stock will likely be your greatest expense.
To save money when purchasing be sure to research suppliers thoroughly. The purpose of this is not necessarily to find the lowest price but to strike a balance between low prices and a supplier’s reputation. In other words, your goal should be to find the best, cheap supplier. Simply going for the cheapest option might end up costing you more in the long run.
In addition, do not be shy about requesting bulk or repeat purchase discounts. Suppliers frequently incentivize customer loyalty with these kinds of benefits, and the long-term savings can make or break for new businesses.
When it comes to purchasing quantity, it is usually wise to use conservative estimates for demand. Over-purchasing exposes you to cashflow risks, unnecessary storage costs, and potential product degradation. Under purchasing simply means that you will need to purchase more.
Concluding How Much Does It Cost to Start a Business?
Hopefully, this article has been useful as you develop an estimate for the cost of starting your business. Careful planning is an integral part of business success, and by considering the variety of costs you might accrue as you launch your new endeavour, you will be better prepared to meet them.
Remember to Compare Your Business Costs is here to help your business every step of the way from business advice, or saving you time and money on your business purchases such as: