What are the costs involved in starting a business?
The process of starting a business can be daunting to some entrepreneurs, especially when there’s a lack of clarity about how much going it alone could cost. It’s important to sit down and properly look through any potential expenses you might have, and determine whether or not you have enough capital to cover everything.
One of the main reasons startup businesses fail is because they run out of money after underestimating their cash flow requirements. If you’re looking to turn your idea into a profitable business, make sure you consider all costs involved to give yourself the best chance of success.
What costs might you encounter?
There are many costs you may come across when starting your business and it’s important to be aware of all of these before jumping in. Please note, the below costs will vary massively depending on your business and you may find that some do not apply to you at all.
Assets and equipment: anything you need to buy for your business such as stock, tools, vehicles and computers.
Subscriptions: if your business requires software in order to function, this is something you may have to pay for on a monthly or yearly basis.
Accountancy and legal fees: you’re more than likely going to have to hire an accountant to manage your company’s finances. There are also set up costs involved such as officially registering your company, which costs £12 if completed online. Finally, you’ll need to make sure you have the appropriate business insurance.
Rent and utilities: whilst you might be able to run your new company from the comfort of your own home, some businesses (such as shops or industrial ventures) will need a physical location. If you do need premises, make sure you know what additional costs this will introduce such as business rates, office insurance, electricity, and broadband.
Salaries: if you think you’ll need staff when starting your business make sure you are aware of the costs associated with this, including PAYE obligations and national insurance contributions.
Marketing: to get your business off the ground, you may want to invest in some marketing efforts. This could take the form of advertising, PR, social media or other campaigns. Your marketing budget should also cover the costs of promotional materials such as business cards.
Tax: be aware that most businesses are required to pay corporation tax and if you’re earning over a certain threshold (£83,000 in 2016) you’ll have to charge your customers VAT. You may want to speak to your accountant about when these taxes are due and what obligations you have.
Extras: don’t forget those small occasional expenses you may incur such as taking potential clients out for coffee – they all add up!
Some of these costs may be due before your business has even made a penny; make sure you’ve got enough money in the bank to cover your expenses until your business becomes profitable.
What can you do to reduce costs?
Before spending any money ask yourself if the expense is really necessary. It can be easy to get swept up in the excitement of starting your own business, but it’s better to be careful in the early days before you know what a stable cash flow looks like for you. You can also save money by shopping around with things like insurance. Try and get several quotes and see if there is any room for negotiation.
If possible, you can save money by doing as much as you can yourself. For example, if your finances are relatively straightforward, you might be able to manage your bookkeeping using a tool like Xero. Assess your own abilities and work out how long you would spend on such tasks and see whether it would be better to do it yourself or hire someone.
Finally, it pays to be tax efficient. Your corporation tax bill will be one of your biggest outgoings, but you can reduce your liability by ensuring you’re recording all of your expenses correctly and looking into R&D tax relief. Talk to your accountant about how to manage your finances as efficiently as possible.