Start-up budgeting guide: How much does it cost to start a business?

If you’ve always wanted to start a business, you may have felt some hesitation when thinking about the question ‘how much does it cost to start a business?’

In our digital-first world, it’s easier than ever before to start a business. With 99.9% of the UK’s total business population made up of small and medium-sized enterprises (SMEs), with around 3 quarters of those not employing anyone aside from the owners.

Though it’s certainly possible to start a business with no money, it’s likely that when you start to finalise a vision for the venture you want to launch, you may find that you’ll need an injection of start-up cash to make this idea a reality.

In this guide, we’ll take a deeper look at the cost of starting a business, and help guide you when forming an accurate projection of what your entrepreneurial vision will cost.

The average cost of starting a business

Unfortunately there’s no simple answer to the question ‘how much does it cost to start a business?’. 

Every business is different, and the cost of starting one can differ hugely depending on the industry, the scope of operations, and many more factors.

Running an independent food van or coffee shop will require far fewer overheads and regulation than a private medical practice or a large B2B industrial operation.

Furthermore, within each of these business types, there’ll be a whole host of variables which will change the way you’ll need to approach the subject of paying for your start-up. 

A restaurant that serves organic, grass-fed, carbon-neutral wagyu is going to have to contend with a very different list of expenses and customer expectations compared to a food van serving burgers and fries.

No matter what kind of business niche you have your eyes on, remember that it’s going to be very hard to estimate the cost of running a business based on the experiences that other entrepreneurs have had. 

Whether you’re planning to start a small business from home or in a commercial space, to get even a semi-accurate budget in place, you need to put your own business plan structure under a microscope. It’s vital to consider the variables unique to you which can affect the cost of starting your business.

How to budget for your business

Budgeting for a business that doesn’t exist yet is a real challenge, but certainly not impossible.

Here are some of the key steps needed to project the costs of starting your business.

Create a detailed business plan

Though business plans are ostensibly for convincing potential investors to contribute their own capital to your business idea, there are many benefits that a business plan can offer a business internally.

The process of writing several sections of a typical business plan can facilitate a better understanding of the costs you’re going to have to cover.

Market research

This should contain important information on the industry you’re about to enter and the target audience you’re going to be marketing to. 

The reason why many businesses complete market research for their small business is to help them understand who the key players in your niche are and how to price a service according to current market conditions. 

As well as key details about your target audience like their income level, the drivers for their decision-making, and what they consider a competitive price for the products you’re going to sell.

Studying businesses that already exist in the niche you’re planning to enter can give you some detailed financial insights if you dig deep enough, while also helping you prepare yourself for potentially unforeseen expenses and common financial mistakes.

Product description

Your business plan needs an overview of the kind of products or services you’ll be selling. 

As you don’t actually have a product yet, you’re going to have to research the costs involved in getting your product from the idea stage to the market, such as prototyping, manufacturing, and testing.

As you figure out the details of the product itself, this can also be a good opportunity to look into the logistics behind getting this product to your customers, such as outsourced manufacturing or supplier costs.

Management team and personnel

Looking at the first few years of your business, think about the cost of staffing. 

Are you going to be running it as a solo entrepreneur, or are you anticipating a need for people with skills and expertise early on?

The planned structure of your senior leadership team will be a big help in understanding the kind of budget and cash flow you’ll need for hiring or outsourcing, and can also help you get a sense of how these needs will develop over time.

Financial analysis

Most importantly, your business plan needs to contain a financial analysis section. 

This part of the business plan usually requires the help of a financial professional, as conducting financial analysis for a business that hasn’t started trading yet requires assumptions based on extensive research and historical data.

Some of the core elements of a financial analysis include:

• Balance sheet.

• Cash flow analysis.

• Profit and loss analysis.

• Break even analysis.

• Personnel expense projections (aligned with the details in the management team and personnel section.)

Look into business structures and formations

Another major influence on how much it will cost to start your business is the kind of legal structure you’re going to set for it. Registering under a designated structure is one of the most basic legal obligations of a business operating in the UK, and as it could affect the cost of starting your business, it’s important to consider as early as possible.

Companies House, the government institution responsible for maintaining records of all registered companies in the UK, maintains a list of fees that you’ll be required to pay for registering different kinds of business.

The actual cost of registering a business in the UK is generally quite affordable, ranging from no cost whatsoever for a sole trader, to £40 for setting up a limited company using a paper form rather than HMRC’s online portal.

However, like the financial analysis in your business plan, registering as a certain type of business can become very complex and challenging, especially when it comes to registering your business as a limited company or a limited liability partnership.

Setting up these kinds of companies will require you to draft watertight legal documents which will formalise the rights and responsibilities of the business’ key members. Unless you have a strong background in finance or law, we recommend you enlist the help of people with expertise in this area.

There are many businesses that offer full company formation services in the UK including the administration needed to register the business, opening a business bank account, and covering any fees set by the government itself. 

These services will start at several hundred pounds, but can cost in the region of £10,000 depending on the exact requirements of the formation.

If you find that you need a service like this, be sure to take the required time to research the market and scope out the most suitable option. This can be a relatively large sum for a new business to contend with, and there might well be savings to be made on some of the administrative tasks by taking care of some of it yourself.

Learn the basics of accounting

As an aspiring business owner, you can expect to become incredibly busy in the near future. With the day to day admin of running a business, serving customers, and promoting your brand, there’s going to be precious little time to wear additional hats.

Like many entrepreneurs, you may want to look into outsourcing your accounting needs as quickly as possible. 

However, it’s still important to learn some of the basics of accounting, not only to forecast the cost of setting up a business, but to maintain better control of your finances in the long run.

To get a better understanding of what starting your small business will cost you, here are some core concepts of accounting you should make time to read up on:

• Tracking expenses: Keeping tabs on all your business expenses is one of the most crucial parts of small business bookkeeping. 

In the UK, you’ll need to keep records of all purchases you make for the running of your business if you’re planning to claim them as tax deductions at the end of the financial year. 

Be sure to plan for a system of regularly collating and filing your business expenses to maintain balanced books.

• Your tax obligations: Going back to the legal structure your business is going to register as, you’ll need to read up on the tax obligations your business will need to fulfil for each year that it spends trading. 

If you’re operating as a sole trader or part of a partnership, you’ll need to file your own personal tax return through the HMRC’s self-assessment system.

• How to calculate your gross margin: Understanding your gross margin is an essential part of keeping accurate financial records and projecting the cost of making your business tick. 

Your gross margin is the figure in your financial reports which shows the total sales revenue your business keeps after paying all the direct costs of producing a product or facilitating a service. 

To find this figure, you’ll first need to project your cost of goods sold (COGS), the total costs incurred for producing products, including both the raw materials and any related manufacturing or logistical expenses.

How to create and maintain a budget

A business budget allows you to better organise all information regarding your available capital, your expenditure, and your revenue. 

When you’re trying to calculate how much it costs to start a business, understanding cash flow through the context of a detailed budget will be a big help in predicting expenses in the near future and the sources of income that can offset them.

When creating and maintaining a budget as a small business owner, consider the following key steps.

Estimate your fixed and variable monthly costs

A good business budget should always draw a clear distinction between fixed and variable costs. 

• Fixed costs are expenses for your business that remain consistent and don’t fluctuate based on the level of production or volume of sales. These costs do not fluctuate with changes in business activity in the short term. Fixed costs can include rent, utilities, insurance premiums, salaries of permanent employees, equipment leases, and loan repayments.

• Variable costs are directly influenced by changes in business activity or production levels. These costs will rise or fall depending on factors like the demand for your product or service. Variable costs can include expenses such as raw materials, packaging, direct labour, commissions, and shipping costs.

Estimate your one-time expenses

One-time expenses, as the name suggests, are non-recurring business expenses, and therefore separate from your fixed and variable operating costs. 

Though one-time expenses can come up at any point in a business development, many of these tend to be those initial large purchases of equipment, licences, and other assets that are required for your basic operations.

Project revenue

Projecting the kind of sales figures your business is going to make minus any expenses will be extremely difficult until you’ve been trading for a while. However, it’s still important to get used to this concept and learn about the kinds of factors that can affect revenue projections in order to budget effectively.

By getting used to contrasting projected revenue with actual revenue, you’ll become more and more effective at knowing the signs that will help you map out realistic revenue projections. 

This, in turn, will be important for setting achievable internal goals that will keep the business heading in the right track.

Know how to track your profit and loss

Your net profit margin is the figure you’ll be left with when deducting any expenses and taxes from your revenue. 

This is going to be one of the most important metrics for you as you navigate your business through that all-important first year, and a figure you should aim to understand thoroughly as part of organising your business’ budget.

One of the best ways to do this is to research template profit and loss (P and L) statements, and align one to the expenses that are specific to your business plan.

Start-up expenses

Business start-up costs are the initial costs that are required to get your business set up and ready to trade. 

These are sometimes referred to as ‘sunk costs’, because no matter what happens at your business after these costs are accounted for, you’re not going to be able to get them back. They’re sunk into the business.

Strictly speaking, start-up costs are non-recurring expenses that are needed to get your business into a state when it can start trading, rather than ongoing, predictable costs that are involved in keeping an existing business ticking over.

However, it’s still important to have a view of all the expenses you’ll need to cover when calculating the cost of starting a business.

Here’s a list of some of the major expenses you’ll need to think about as you budget for starting your business.

Registering your business

As mentioned earlier, you’ll have to register your business with HMRC to ensure you’re operating within the law. The cost of registering your business can range from nothing to several thousand pounds, so be clear on the kind of business structure you’re going to need and the cost involved in company formation for this structure.

Permits and licensing

Many types of businesses will require permits, licences, or certifications to operate legally in the UK, for example businesses that deal in food or alcohol. 

They vary depending on the industry and nature of the business. Considering permits and licensing is essential to ensure regulatory compliance, avoid legal penalties, and build trust with customers and partners.

Legal and Health and Safety Requirements

These expenses encompass legal and health and safety compliance obligations specific to your potential business. It involves the costs associated with legal advice, drafting contracts, workplace health and safety measures, and ensuring compliance with employment laws. 

Thinking about these requirements is crucial to protect your business legally, create a safe work environment, and maintain positive employer-employee relationships.

Insurance

A key part of any business readiness checklist, most businesses will need to budget for some kind of insurance to protect themselves from risks and liabilities. This can include premises contents insurance, employers’ liability insurance, product liability insurance, and any other specific types of coverage based on the activities your business engages in.

Taxes

It’s crucial to consider tax obligations when starting a business in the UK to ensure compliance with the law and avoid penalties. 

Bear in mind that different business structures will have different tax obligations at the end of each financial year. It’s essential to either research your tax obligations thoroughly and budget for them far in advance, or to consult with a reliable accountant to keep your cash flow in line with your tax bill.

Rent

Unless you’re looking into how to start an online business or online store with no physical aspect to it, you’ll need to think about the cost of leasing or renting a brick-and-mortar space for your business operations, such as an office, retail store, or manufacturing facility. Rent can constitute a significant portion of your operating costs, so be sure to get a good feel for the kind of rent you’ll be paying in your local area.

Stock

Stock expenses refer to the cost of purchasing inventory or raw materials necessary to make your products or facilitate your services.

Handling payments and receipts

This expense encompasses the costs associated with payment processing tech, point-of-sale systems, and other payment-related services. These expenses facilitate smooth and secure payment transactions, ensure accurate book-keeping, and provide convenience to customers.

Fixtures and fittings

Fixtures and fittings expenses include the cost of furnishing and equipping your business premises, such as office furniture, shelving, display cases, and signage. These might be minor or even non-existent expenses in your first few weeks of operation. However, as your business develops, it’s likely to become increasingly important to create a functional and comfortable workspace or storefront.

Equipment

Equipment expenses involve the cost of purchasing or leasing necessary machinery, tools, or tech required for your business to operate. This can be a challenging expense to plan for, as there’s a huge variety in various equipment niches, and each one will directly impact the efficiency, productivity, and success of your business.

Utilities

Utilities cover the ongoing costs of essential services such as electricity, water, gas, and internet connectivity for your business premises. Considering utilities is crucial to ensure a comfortable and functional working environment. 

It’s also important to research how the nature of your business will affect the cost of utilities. I.e, if you’re running a cafe, your utilities are going to take a much larger portion of your income than if you were planning to start a small business from home.

Maintenance of any equipment and machinery

This expense includes the cost of regular maintenance, repairs, and servicing of your business equipment and machinery. 

Maintenance costs will ensure the longevity and optimal performance of your assets, avoid unexpected breakdowns, and minimise business disruptions, so make sure that this doesn’t fall by the wayside.

Recruitment and staff

Recruitment and staff expenses are among the most expensive for any small business. This not only includes salaries, benefits, and payroll taxes, but also the cost of advertising or working with recruitment agencies to get talent into your organisation. Considering these expenses is necessary to build a diverse and competent team who will be an asset to your business.

Considering all of these expenses as one total can feel daunting, but there are many effective ways for first-time merchants to secure funding and make their vision a reality.

Here are a few common avenues that first-time entrepreneurs can use to raise capital for their businesses:

• Borrowing money from friends and family.

• Traditional business loans from banks.

• Small business crowdfunding (using purpose-built online platforms to raise money from private investors and donors).

• Bootstrapping (using your own savings, low interest credit cards, mortgages and other lines of credit).

• Small business grants from the government.

• Entering your business into local competitions.

Start-up assets and allowable expenses

When you’re working to calculate the cost of starting a business, it’s also important to understand the role of assets and allowable expenses in your business’ cash flow.

An asset is anything that holds or will hold monetary value for your business. It can include the goods that you sell to your customers, any tools and equipment you own to facilitate your business operations, the premises that you own, and countless other things that might be involved in the day-to-day running of a business.

Business assets will generally always fall into one of 3 categories:

• Current assets, which will cover any cash including accounts receivable and inventory.

• Fixed assets, which covers physical property such as premises and equipment.

• Intangible assets, which includes all intellectual property alongside licences or ongoing agreements which have monetary value.

Many of the business assets you’ll have to account for in your early budgeting will be classed as allowable business expenses. 

These are costs which are necessary to keep the business running, to work out your taxable profit.

Government guidelines specify that any expenses deducted from your business revenue must be costs that were wholly and exclusively for the purposes of running a business. This means that for any expenses you’re planning to claim, they must be verifiably used to either keep your business running or in an attempt to attract more business (e.g advertising costs).

Keeping a healthy cash flow can be a challenge for new merchants. Keeping accurate records and receipts of payments can help with projections and understanding the monthly run rate which in turn helps with managing cash flow

What counts as expenses that are used for the running of your business can get slightly confusing. This is because what’s allowed often hinges on the specifics of how and why the money was spent, rather than what the expense was paying for.

Eating out, for example, can be an allowable expense for sole traders depending on the town or city where they sit down to eat. In this situation, travelling to a temporary place of work can make expenses such as eating out allowable, but if these expenses are incurred in a normal place of work (e.g a cafe where a freelancer does the bulk of their work) the bill won’t be considered an allowable expense.

Getting familiar with these kinds of nuances can make all the difference to how accurate your cash flow projections are, so be sure to get a system in place for periodically reviewing your business expenses and learning what qualifies as deductible.

How to record expenses

HMRC requires every business to keep detailed records of expenses they wish to claim in their tax returns. Not having these if and when HMRC asks to see your records can land you in hot water. With this in mind, it’s important to understand exactly what needs to be included and the system you’ll use to maintain these records.

How long should you keep expense records?

The length of time you have to keep records of your expenses depends on your business’ registered legal structure. 

Limited companies must hold onto their records for 6 years, whereas sole traders have it a little easier with a period of 5 years. Note that these periods start following the 31st of January deadlines for tax returns for the financial year when the expenses were incurred.

Preserving records

As a bare minimum, as the business owner, you must maintain a column in your cash flow records for all the expenses incurred in an accounting period. 

When you submit a tax return to HMRC, you’ll need to break your expenses down into more specific categories, but keeping this figure updated from one month to the next will help with budgeting for your end-of-year tax bill.

When it comes to keeping records of your expenses, one of the best things any modern business can do to simplify its accounting is create a system for scanning paper records and saving them as a digital format.

Paper receipts are susceptible to wear and tear, and 5 years is a long time to keep them safe in case HMRC asks to review your reported expenses. Aside from this, the government’s Making Tax Digital initiative is introducing legislation that will eventually require all small businesses to record transactions and submit returns digitally.

We recommend setting a recurring to-do in your calendar to either scan your paper receipts into a digital format (taking a picture is fine too, as long as all the information on the receipt is legible.) 

To make the data on these receipts searchable and easier to navigate, there are many pieces of software on the market capable of extracting data from receipt images.

The exact system you use for keeping these records is up to you. However, we generally advise organising them by the month the expense was purchased, and then further by categories such as the cost of goods for resale, travel expenses, equipment maintenance, and so on.

When storing your digital records, it’s also essential to make at least one copy of every individual expense record through a cloud storage service like Google Drive or OneDrive.

Types of start-up costs

When you’re starting a side hustle or small business, expenses can come from a range of sources. 

Distinguishing these costs and fitting each one to the context of your business will be a big help in your efforts to make accurate projections and plan for the cost of running your business.

There are 4 main categories of start-up costs you’ll need to look into as you budget for your business:

1. One-time expenses

2. Fixed and ongoing expenses

3. Variable expenses

4. Essential vs optional expenses

To explain each category in more detail, we’ve provided you with an overview for each expense type and how it can relate to your small business start-up costs.

One-time expenses

One-time expenses refer to any expenses you'll only incur once as a business. These costs are typically associated with setting up the business, acquiring necessary assets, and meeting legal and administrative requirements. 

Examples of one-time start-up costs include equipment purchases, professional fees for legal and accounting services like company formation, registration fees, initial inventory or supplies, marketing and advertising expenses, and any other upfront investments needed to establish the business. 

Though there may be some crossover in the exact things you’re paying for, one-time costs are distinct from ongoing operational expenses and are crucial to consider when creating a comprehensive financial plan for starting a small business. 

By accounting for these one-time start-up costs, entrepreneurs can better estimate their initial capital requirements and ensure proper budgeting to launch their business successfully.

Fixed and ongoing expenses

Fixed costs are any recurring costs that consistently stay the same over a given period of time, and include things like insurance and rent payments, credit card fees, and salaries.

Although you may not have started trading yet, it’s important to carry out some research into the kinds of fixed costs you'll be looking at once your business is up and running. From there, you can list and add these figures for a monthly total which will show you the bare minimum income your business will need to stay afloat.

Generally, most fixed costs can only be reduced by making sacrifices with certain business assets, such as moving to more cost-efficient premises or downsizing your workforce.

Many fixed costs fall into a second category of ongoing costs. Ongoing costs, often called operating expenses, are the costs for covering the administrative, operational, and maintenance requirements of a business, such as utility bills for your premises or subscriptions for software like marketing suites or invoice generation tools. Anything that can be budgeted for over several consecutive reporting periods, whether that’s weeks, months, or even years, can be considered an ongoing cost.

You can calculate the sum of your ongoing costs by adding your cost of goods sold (COGs) to your operating expenses. 

Variable expenses

Variable costs, on the other hand, are costs that vary from one reporting period to another. Many variable costs are intrinsically linked to the performance of the business. For example, costs like labour and materials are liable to go up and down in-line with your business’ revenue. 

As a business owner, you will need to think about some of the most common variable costs, including: 

• The raw materials required to build a product or provide a service.

• Supply and labour needed to maintain your business equipment.

• Variable worker bonuses like sales commission.

• Shipping charges.

Variable costs, as opposed to fixed costs, can often be reduced without any major disruption to your day to day operations. It’s common for merchants to regularly audit the financial efficiencies in their business and find new ways to make their variable costs less strenuous on their bottom line.

It’s likely that you’ve heard other business owners talk about semi-variable costs. This is used to refer to expenses that have elements that make them somewhat fixed and somewhat variable.

If, for example, you have busy periods where you offer your staff time-and-a-half pay, some of their wages are going to be fixed and dependable, whereas their overtime wages will go up and down depending on demands placed on your business. 

Though they’re closely related, it’s a good idea to separate the different costs associated with semi-variable expenses into separate fixed and variable portions for more consistent reporting.

Essential vs optional expenses

Another important categorisation for the cost of running your business is the difference between essential and optional expenses.

Optional expenses, sometimes called discretionary expenses, are expenses that aren’t essential for the running of your business. 

Bear in mind that this definition should be taken very literally for the purposes of budgeting and reporting for your new business. Many optional expenses aren’t considered optional. Expenses for Pay-Per-Click (PPC) advertising, for example, might be vital for your business to remain competitive in its market. However, because the business could operate without paying for this marketing method, this expense isn’t strictly essential.

Some common examples of optional expenses that may factor into your start-up budget include:

• Marketing. An expense which should always be accounted for if you want your business to grow, but won’t actually take away your ability to trade if it’s removed.

• Discretionary investments. Unless you’re running a holding company, the cost of holding investments is another common optional expense found in many business accounts.

Some of these investments might be made with the sole purpose of stimulating growth at your business, or investing in developing new products which will brighten the prospects for your business’ future. However, investments made by the business are always classed as an optional expense.

• Subscriptions. Though some subscriptions will be essential, such as for backend software which facilitates your business’ basic operations, many subscriptions can also be classed as optional expenses. Communication tools like Slack, and efficiency tools like Asana, are common examples of subscriptions that are optional for the basic functions of the business.

Essential expenses, on the other hand, are expenses that are absolutely non-negotiable for the business, meaning that if you were to stop paying any of these expenses, there’d be serious ramifications that would mean you’d have to cease trading.

Some examples of essential expenses include:

• Any taxes on your profits or goods.

• Fixed salaries for employees.

• Debt repayments such as business premises mortgages and loans.

• Premises rent.

• Utility bills for any services that your business needs to operate.

• Inventory costs if your business sells any kind of physical goods.

• Software costs for anything that directly facilitates the basic functions of your business.

• Essential pieces of equipment, such as point of sale (POS) systems.

Ongoing costs to account for

When starting your entrepreneurial journey, it’s important to go in with a clear idea of exactly how much it will cost you to start a business. However, it’s important to keep realistic expectations for the future, and there’ll be various other expenses you’ll have to account for in the coming months and years.

To make your budgeting even more robust, here are 7 common ongoing costs you’ll need to account for as your business plan begins to take shape.

Stock

If your business model revolves around selling a physical product, then managing stock efficiently is one of the most effective ways to maximise profits and avoid costly problems.

Optimising stock as an expense doesn’t begin and end at managing the cost of the stock itself. Aside from this, you’ll also have to ensure the surrounding logistics and other ongoing costs won’t be too strenuous on your cash flow.

Here are some of the important ways to manage your stock-related expenses and make sure your inventory is working for you.

• Prioritise your stock using categories: Categorising your inventory and using this to prioritise different products will help you make your inventory as cost-efficient as possible. 

Having a better method of organisation will help you to keep a finger on the pulse in terms of supply and demand, allowing you to order more of your priority items while saving money on items that are bringing in less revenue.

• Audit suppliers often: Issues that stem from your suppliers can have knock-on effects which will cause serious financial difficulties at your business. Late or inefficient deliveries, orders that aren’t properly fulfilled, and similar issues, will all drive up the cost of inventory management and trim your profit margin. 

Be prepared to address these issues with suppliers often and even review new suppliers in order to keep your stock expenses as low as possible.

• Track your sales in detail: Every merchant will keep an eye on their sales, but getting more granular with this part of your reporting will help you to manage your stock efficiently and offset any wasted capital. By asking yourself a few initial questions will help you to better understand your customers’ journey:

  • Are there certain times of the day when certain products are selling a lot more? 

  • Are you seeing similar patterns at certain months or seasons? 

  • Are there patterns of products always being bought together which you can take advantage of through cross-sell opportunities? 

Using these questions will help you to make the right calls in managing inventory and prevent stock expenses from becoming too heavy to manage.

Equipment

Equipment covers any kind of tool you need to maintain your business’s normal operations. 

These essential expenses can often represent one of the largest costs for anyone looking to start a business, so planning ahead and making sure you get the most for your money is an important step when starting your business.

To make acquiring equipment as cost-effective as possible, we recommend following the following best practices:

Go in with a plan

A common trait for new merchants fresh out of a powerful round of funding is to over-invest in equipment that isn’t necessarily needed. 

Before you think about buying any equipment for your business, revisit your business plan andenvision the initial period of trading, then come up with an equipment acquisition plan that accurately reflects your needs. This will ensure that every penny spent on equipment is done so with efficiency in mind, and you’re not left managing assets which don’t bring in any real value.

Think about outsourcing maintenance of equipment

There’s a higher degree of control and a certain assurance that can come with maintaining all the equipment you need to operate. However, for most new businesses, it is worth thinking about whether outsourcing would create a more cost-effective setup. 

Like many decisions you’ll have to make as a new business owner, your decisions to buy, lease or maintain equipment should always undergo a rigorous cost benefit analysis.

Consider value as well as price

When you’re starting a business, making your money go as far as possible is always going to be at the front of your mind. However, your business equipment is one area where you should try to avoid getting into a race for the bottom where you invest in the cheapest solutions possible. 

Like many things, you get what you pay for with business equipment. Try to purchase equipment to fulfil the needs of your business, rather than to simply save money.

Premises

Your business premises may represent the biggest cost that you have to account for, and can be a daunting topic to think about for first-time merchants. 

Like your equipment, the premises where you set up shop can have a tremendous impact on your business’ ability to perform, and it’s important to take certain steps to ensure you get the most value from your investment.

View every commercial space in person

Business premises listings tend to be a lot more detailed than residential ones. However, just like when you’re looking for a home to buy or rent, it’s essential to view the premises in person and check for any underlying issues that aren’t reflected in online listings. 

This may leave you squeezed for time, but considering how important foot traffic is to brick and mortar businesses, going the extra mile is well worth the effort.

Negotiate for a more favourable position

As a new business owner, you may feel an inclination to search for your first premises and accept the first price point for an office or storefront that’s a good fit for your needs. 

It’s important to bear in mind that you can negotiate on a variety of different costs, including the rental deposit, asking for lowered rent while your business gets set up, seeking a contribution to the cost of fitting out the premises, etc. Any kind of reduction can have a major positive impact in your first few months of trading, so don’t be afraid to get around the negotiating table.

Research additional costs

You may have a clear idea of your budget when you first start looking for a business premises, but it’s important to make sure you’re getting an accurate quote with any business premises that you consider. 

There’ll be additional business rates on top of the rent you’ll pay, and not all quotes for rent, deposits, and other expenses will include VAT. You’ll also have to consider fit out and legal fees as part of equipping your premises and negotiating your lease or mortgage. Be sure to research these costs and take them into account as you budget for your business premises.

Registration and licensing fees

If you’re registering as a sole trader and starting out as the only person owning and operating your business, then you’ll be able to register your business with HMRC at no expense excluding an hour or 2 of your time. 

However, if you’re planning to register a limited company or LLC, the legal and administrative requirements can quickly become more complex. 

Not only will you have to pay a registration fee set by Companies House, but you may also have to budget for a company formation service that will provide the legal expertise necessary to draft the right agreements, fill forms accurately, and take care of auxiliary services like opening a business bank account.

Aside from the cost of registration, you may also have to purchase certain licences to keep all your business operations legal and above-board.

Whether or not you need licensing will depend not only on the core nature of your business, but also on more specific details about your business activities and your premises, such as whether or not you use CCTV.

Though there’s no quick and easy answer to the question ‘does my business need a licence?’. However, the government maintains a helpful online licence finder tool which you can use to check whether or not your business plan necessitates legal licensing.

Here are just some of the activities or traits you’ll need to apply for a licence for as a business in the UK:

• Playing recorded music in your premises, for example when setting the mood in a cafe or restaurant.

• Processing personal data, which will be part of the daily operations for any business that sells products or services online.

• Using CCTV, for example in a brick and mortar store to prevent theft. Note that there are separate licences for CCTV that’s used strictly within your property or CCTV that covers a public space like the pavement outside a shop.

• Providing childcare services, e.g as a private childminder or when setting up a nursery.

• Provide tattoos, piercings, or other body modifications.

• Sell or serve alcohol, whether that’s in a commerce setting like a brick and mortar wine vendor or a pub, bar, or restaurant.

The penalties for engaging in these kinds of activities can be huge, not only in terms of the heavy fines imposed but the reputational damage to your business. Be sure to research your licensing needs thoroughly and incorporate them into your budget.

Print marketing

Though it may not be as accessible as some digital marketing channels like social media and digital content marketing, print marketing can be a hugely powerful asset in your early promotion, especially if you’re running a small brick-and-mortar business with a strong connection to the local community.

Though it may seem like you need to splash out to compete with some of the more established shops already in your local area, there are a variety of ways that you can reduce the cost of your print marketing without sacrificing anything on quality.

Some of these best practices include:

• Using standardised sizes for your designs. Sticking to a small number of standard sizes for your print advertising may feel creatively stifling, but this is a great way to trim down the cost of materials and productions for your printers, which will get you a more favourable rate for your marketing initiatives.

• Recycle your creative assets. Reusing photography, graphics, and wording will help you avoid the cost of commissioning fresh pieces of work for each new marketing initiative. 

This can be an especially effective tactic for saving on marketing when you’re running campaigns with a simple message. For example, if you own the original design files for a past flash sale, you may be able to make some edits about key details about the dates and the products that are included to update it for your current marketing efforts. 

This will likely also help with your branding, as your customers get used to the visuals and the wording your business uses to advertise.

• Plan far ahead: Creating a long-term marketing calendar and considering the print needs of each promotion can open your eyes to a number of cost-effective possibilities for repurposing and differentiating your campaigns through low-cost amendments. 

Website and digital marketing

Even when you’re running a strictly brick and mortar operation, all modern businesses need to maintain a website and some kind of digital marketing presence to compete in the modern market.

Digital marketing can take up a significant proportion of your total business budget, but there’s plenty of ways to offset the cost of your digital marketing in your first year.

Invest in organic marketing

SEO and organic social media marketing can be hugely effective ways to bring in new business. Though you’ll likely want to outsource this work as your requirements become more complex, neither of these methods will cost you a penny to get started with. 

Organic digital marketing can take some time to gain traction when you’re starting from scratch. However, once you’ve learned some basic best practices and found the best way to tailor your organic marketing to your audience, the return on your efforts can be tremendous.

Research free digital marketing tools

As you may know, industry leading digital marketing tools can cost a business several thousand pounds per year to access the full suite of functionality on offer. However, there are many useful digital marketing tools that you can access for no fee at all, and still gain access to some powerful insights and data to supercharge your business’ exposure. 

Whether it’s 100% free tools like Google Analytics or a free version of a paid tool like Buffer’s starting plan, there are many ways to gain the insights you need as a new business owner without investing heavily right away. Note that when your digital marketing ramps up, you’ll be able to benefit from the full range of features offered by these tools by outsourcing to agencies who use them.

Incentivise word-of-mouth marketing

For many start-ups, one of the best ways to acquire new customers is referrals from their existing customers. 

Offering refer-a-friend incentives such as discounts, freebies, or good old cash rewards can be a huge source of new traffic, and barely costs anything to leverage. 

Coming up with a profitable referral program model and sending out a single email campaign can be enough to see a huge flood of new customers. Furthermore, referral programs can also instil a feeling of loyalty and satisfaction in your existing customers, increasing the chances that you’ll be able to enjoy consistent business from them in the future.

Budgeting for your business

There’s no single answer to the question ‘how much does it cost to start a business?’ However, by fully understanding the requirements for your business plan to be executed successfully, you’ll have a roadmap to minimising waste and keeping focused on the end goal. 

Cash flow is one of the most challenging aspects of running a business, and often not at the fault of the merchant themselves. By budgeting wisely, and investing sensibly you can at least try to minimise the inevitable hurdles that make running a business the enthralling, emotional, brilliant rollercoaster that it is. 

Disclaimer: The contents of this page are intended for informational purposes only and should not be construed as professional advice. For matters requiring legal or financial expertise, it’s recommended to seek guidance from qualified professionals.