What is the cost of starting a business?

Businesses require you to invest your time and money, and you’re not sure what your return will be. Keep reading to learn how to plan and estimate business costs to get off to the best start possible.  

What It Means To Start Your Own Business

When you create your own company, you don the boss hat that puts you in charge of everything. From coming up with the concept to planning what you’ll sell, how you’ll sell it and how much it will cost. Taking on all of the control means shouldering the risks too. 

Most businesses start as sole traders or partnerships but can grow into large or even multinational companies. Either way, there’s one or two people at the top that need to make decisions about how you’ll run and manage the business. 

When you start a new venture, you’ll have a lot of competing priorities. They include designing your products or services and determining your unique selling point. 

How Much Does It Cost To Start A Business

While the business concept is crucial, you also need to consider another vital element: planning. Understanding what it takes to launch your product will help you make it happen. Most importantly, you’ll be able to plan the costs and get the funding in place to get off the ground.

You’ll need a budget with two specific costs. The first will cover your launch, and the second will be a projection of what you’ll spend in the first year. 

These amounts will vary based on your size, plans and product. 

However, the average startup cost for a UK business is around £5,000. After that, the average spend over the first year is around £22,000.

Startup Costs

Once you have a business plan, you can work out your startup costs. This is the money you’ll spend in the first month or two to get set up. They’re often referred to as fixed costs because they remain the same whether you’re profitable or not. They need to be paid no matter the size of your business. 

These expenses are one-time payments for essentials. That includes:

• Business insurance and liability insurance
• Marketing and branding costs
• Website costs
• Professional fees for accountants and lawyers 
• Registration fees
• Office supplies
• Licences or permits

Expenses

On-going fees include a mixture of fixed and variable costs. A variable cost is something that goes up when production or sales volume increases. They’ll need to be part of your first-year projection as these expenses focus on how much you need to spend to operate the business. 

Typically, you can estimate a regular monthly budget, taking into consideration increases due to demand or other circumstances.

It might include monthly rent for an office or a budget for hiring a meeting space on an ad-hoc basis. It’ll include hosting fees for your website, product costs, salaries, and any other amounts connected to providing your product or service, such as storage and delivery. 

Overlooked Costs

If it’s your first time starting a business, there’s bound to be a cost that you’ve overlooked. Every little detail needs to be taken into account. One example of a cost that gets forgotten is tax. How much you pay will depend on the success of your business, but you’ll need to register, get an accountant and pay according to your profits.

Another overlooked expense is research. To be successful and get your product or service fit for launch, you’ll need to understand your customers, your competitors and the latest trends. 

Another example is the cost of borrowing. Whether it’s interest or paying investors their share, it must be calculated from the start.    

Scalability and Business Costs

Small and large businesses have fixed costs. These can be roughly the same, no matter the company’s size. There are some instances, such as insurance, marketing and acquiring multiple permits, that might make initial expenses higher for larger companies.

While it's true that every startup will need to pay a certain amount to get set up, that’s not the case for variable costs. In this instance, larger businesses will almost always need to spend more than smaller ones, as those costs include salaries and production. 

For example, an online business run from someone’s home will have different considerations to a limited company with an office and a team of three.

Startup capital impacts success as you can get the service or product right and put in place the best processes. Coming up with a concept that’s scalable is what every company wants. It means that you can increase revenue without increasing costs.       

How To Get Funding

Since startup capital is vital, seeking financial help is a common step towards starting a business. Before you get that far, consider what free support you can get. It could come in the form of advice from the government, grants, ways to access low-cost solutions and tax breaks. 

If cash is your main requirement for getting off the ground, then your business plan and good credit history are two essential ingredients for proceeding. You need to know what you’re asking for to prove to banks and investors that you’ll use their support to be a success.  

Estimate Your Business Costs

Ready to plan your business and work out the costs to see if it’s viable? Remember to:

• Begin with a list of everything you need to do and have
• Use your list to set a budget - the average startup cost is £5,000
• Create a business plan where you itemise fixed and variable costs
• Make decisions around your company size and scalability
• Get advice and prepare your pitch for funding