When you’re starting a new business, it’s easy to get caught up in all the ideas bubbling up in your brain. Sometimes, we lose sight of the true aim of any business, which is to turn a profit.
So, it’s important to recognise the costs involved in starting your business upfront. Unexpected expenses and lack of planning are common reasons why many new businesses struggle in the early stages. Planning your spending is vital, especially in those early days, when your costs can mount up fast.
We’ve written this blog to help new business owners in Swadlincote to understand and be able to plan for these costs.
The obvious start-up costs
Most people expect certain expenses when launching a new business, and these upfront costs will typically form the bulk of your initial budget:
Registration and licensing
If you’re setting up a limited company in the UK, you should expect to pay a £50 fee to register your business. Depending on the business you’re operating, you may also require licences or permits in order to operate. For example, if you’re planning to serve alcohol, or if your business involves driving good vehicles.
A comprehensive list of licences and fees for businesses operating in England is available here.
Equipment and tools
It’s likely that you’ll need to purchase things like computers, phones, POS systems, machinery and vehicles to support your business. Service-based businesses often have lower upfront costs because they rely more on skills than stock or equipment. Product-based businesses usually need more capital for inventory, storage and production.
Premises
Wherever your business is operating from, there will be associated costs.
If you’re hiring office or shop space, you can expect to need to cover a deposit, rent and legal fees upfront, and you may wish to pay to fit-out the space to your standards.
Even working from home, you may still need to account for purchases such as office equipment or perhaps even an increase in your household bills.
The often-overlooked start-up costs
Beyond the bigger expenses list above, there are numerous smaller costs that can catch you off guard and quickly add up if you don’t anticipate them:
Insurance
It can be tempting to ignore the need for insurance. We never expect the worst to happen to us, but it can and it does. Operating without insurance opens you and your business up to huge financial and legal risk.
The type of cover you need will depend on the nature of your business, but broadly, most businesses will require public liability, professional indemnity and contents cover. If you employ staff, you’re legally required to take out employer’s liability.
Professional fees
Setting up a business can be complex, and you may need to hire professionals to help and advise you on things like bookkeeping or tax registration. You may also incur legal fees for drawing up contracts or lease agreements.
Marketing and branding
Getting seen by your ideal clients involves marketing and branding. Logo design, website hosting, domain names, printed materials and even social media advertising come at a cost, even if you initially choose to do it yourself.
Working capital
Your business will not be profitable from day one. It takes time to build a client base and get cash flowing into the business that will eventually cover your day-to-day spending. You’ll need to make sure you have enough funds to cover your running costs until the business becomes self-sustaining.
UK-specific requirements
Operating a business in the UK comes with legal and regulatory obligations that carry their own associated costs and compliance requirements:
VAT registration
If your business turns over more than £90,000 per year, you’ll need to register to pay VAT on your goods and services. You’ll need to consider this in your costs, as this can constitute a significant bill at the end of the tax year. For businesses bringing in less than £90,000 annually, you can register to pay VAT voluntarily. You can learn more about the pros and cons of doing so here.
Business Rates
If you run your business from commercial premises, you may need to pay Business Rates. Many small businesses in Swadlincote can claim Small Business Rate Relief, which could reduce or even remove this cost.
Employer obligations
If you employ staff, you’ll need to set up payroll, provide a Workplace Pension and take out employers’ liability insurance. You’ll also need to meet legal requirements for contracts, holiday entitlement and statutory sick pay.
Typical start-up costs
A study by Tide reports that the average start-up in the UK budgets £5000 to launch, and spends around £22,756 in their first year. Of course, this varies enormously by sector. For example in retail, costs are higher because you’ll need to secure premises, fit out the shop, buy stock upfront, and invest in signage and display equipment. Food businesses face extra costs for kitchen equipment and food hygiene compliance. A tradesperson needs a reliable vehicle, specialist tools, and relevant certifications. Ongoing costs for insurance and marketing are also important.
Freelancer or home-based consultants typically have the lowest set up costs as you can work from home, with main expenses being a good computer, software, and marketing.
Essential vs ‘nice-to-have’ costs
With so many potential outgoings, prioritising your spending is essential.
Identify what you need versus what you want. There may be elements you can do yourself to save money early on, and invest in more fully once your business starts making a profit.
Looking at second-hand equipment and securing good deals on your upfront spending will also be of benefit.
Funding and support options
If this all seems a little overwhelming, there are plenty of options to turn to for help.
The D2N2 Growth Hub and East Midlands Chamber both offer support programmes, providing free training and advice as well as signposting relevant funding opportunities.
The UK Start Up Loan Scheme can also offer Government back financial support. It’s also worth looking into the pros and cons of trading as a limited company vs. a sole trader. Picking the right one for your business can have significant tax implications and help limit start-up costs.
Financial planning matters
Ultimately, businesses should be designed to make money. Many fail because they overlook this early on.
While it may feel like yet another expense, investing in qualified advice from a reputable accountant or business adviser like Buckler Spencer can help prevent costly errors further down the line.
We offer business support in Swadlincote to help you to set realistic budgets, identify hidden costs and structure your business for tax efficiency from day one.
If you’re ready to turn vague numbers into a solid plan, with support from qualified professionals, get in touch with us today to find out how we can help you create the business you’ve been dreaming of.