We’re dedicated to helping people start their own successful businesses – and the key to success is transforming your idea and passion into a plan. It’s like the old saying goes, “failure to plan is planning to fail”.
Unfortunately, 1 in 5 new businesses in the UK fail each year. The biggest reason for this is that they didn’t plan. Having an idea will only take you so far, but to reach success, you need to know how to translate this vision into actionable steps and get a clear view of the challenges you’ll face along the way.
One of these challenges is how much starting a business will cost you and all of the hidden expenses that you might not have thought of.
Knowing what to expect (and planning to cushion to fall back on!) will help you finance the right amount, soar through your first 12 months and ultimately put you on track to earning profit.
So to help you on the way, we’ve put together this guide on the startup business costs to consider and plan for in the UK.
The importance of knowing your startup business costs
Finances are arguably the most important part of any business. If you can’t make your business profitable, it’s game over. As much as you might love your business idea, if you can’t get the finances to line up, it will be like trying to cross the Atlantic on a sinking ship.
We’re not saying this to frighten you or dampen your spirits. It’s just to really hammer home the importance of knowing what startup and running costs you can expect to face.
The more you know, the more you can plan for and the less you will rely on sales as you find your feet.
In addition, if you plan on applying for finance, whether you’re applying for a loan or seeking an investor, knowing your costs will also ensure that you ask for the right amount to get your business in the best position possible.
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What type of start-up costs can I expect?
It’s time for our favourite answer: it depends!
The type and amount of start-up costs you can expect will vary by the type of business, industry, location and ambition. For example, different company structures (i.e. a sole trader or limited company) will see different costs involved with company formation and taxation.
Generally speaking, all start-up costs can be grouped into one of three categories.
Investigatory costs
These are the costs that are involved in researching your market, making a business plan and ultimately assessing your business before you register it.
This could include costs of buying competitor products as part of industry analysis, running surveys or panel groups to create user research or any consultancy fees for research or advice.
Pre-launch startup costs
These costs happen as you prepare to register and launch your business, but before you are ready to start trading. This could include anything from equipment, formation fees, training and qualifications, office furnishings, and initial inventory.
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Post-opening startup costs
Post-opening startup costs happen after your business is officially launched and trading and cover the day-to-day management and promotion of your services.
For example, they can include bills like insurance and utility bills, licensing, stock management, rent and finance repayments, and any advertising, marketing and promotion. If you hire employees, payroll will also fall under this category.
15 startup business costs to consider
Now you have an understanding of startup costs, let’s help you plan with some of the most common expenses that you will be facing.
1. Research expenses
We briefly mentioned these in the investigatory costs section, but this expense will cover anything that you need to research your business, audience, industry and competitors. For example, this could include:
- Hiring an external research agency to help you explore your industry and market fit.
- Any software you use to research, such as survey websites for audience research.
- Offered incentives to your audience if they speak with you, such as gift cards or physical gifts.
- Access to paid market research insights that other companies have already completed in your sector.
- Any professional fees for paid advice from accountants, consultants or legal professionals.
Another important research cost to consider is money to purchase competitor’s products or services.
Just looking at a website will only get you so far, sometimes you need to go through the entire journey and stress test their products to get insights that you wouldn’t otherwise. For example, how are their products shipped and packaged? What is the unboxing experience like? What is their customer service team like? What emails or after-care do they provide? Unless you act as one of their consumers, you won’t easily get these answers.
2. Professional fees
This will cover the costs of any professional that you will need to hire for your business, whether it’s for one-off use or an ongoing basis. This can include:
- Accountants
- Solicitors
- Lawyers
- Consultant
- IT manager
- And more.
Basically, any service or advice that you pay a professional for will be included in this section. This could be anything from helping manage the books, to getting your equipment installed, to helping write contracts or even gaining appropriate certification.
When looking at this cost, don’t assume that you will be able to do everything in-house without help. Even if you don’t hire an accountant and choose to manage the books yourself, you still will want to consider any one-off services that you might need help with, like annual reports.
In addition, you’ll want to think about the cost of the accounting software you will use instead, which we’ll cover a little bit more in the subscriptions section.
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3. Finance fees
Whether you’re considering applying for a loan, attracting an investor or borrowing from friends – you don’t get money for anything. Whatever method you’re using to finance your startup costs, you need to factor in any interest and fees that you’ll accrue and how you can pay the amount back.
4. Insurance costs
The level of coverage and types of insurance that businesses will need depend on your industry, structure, and the services that you offer. If you’re a sole trader, technically, you don’t need to take out any insurance.
However, there are very big caveats to that and instances where insurance is essential for any business. For example:
- Professional or Public Liability Insurance could be required depending on the contracts you enter into, especially if you work closely with or in the public eye. Some clients may refuse to work with you unless you have a minimum coverage amount, ranging between £1-£10 million. But the good news is that if you’re held responsible for injury or property damage, you’re covered.
- Employers’ liability insurance is a legal requirement if you have employees – and you can be fined up to £2,500 every day you don’t have this protection in place.
- Building and contents insurance protects your premises and equipment if the worst should happen. If you’re running a business from home, note that your personal building and contents insurance might not cover your business, so you will need a separate policy for this side.
- Vehicle insurance is essential if you’re using a business vehicle or travelling as part of your work.
There may also be policies you can choose to take out for extra protection, such as personal accident insurance, which guarantees your income if an injury prevents you from working.
5. Rent or property costs
If you’re planning on renting or purchasing a property to run your business from, then you need to factor the cost of rent or mortgage into your plan.
But as well as the rent, you will need to consider any changes or upgrades you need to make to the space to make it suitable. This could include any remodelling or installations (particularly if you work with specialised equipment) or even essential furnishings like desks and chairs.
You might decide to run your business from home to reduce costs, but whether this will be feasable will depend on the type of business you want to start.
6. Employment
If you want to employ staff, then you need to factor in costs for wages, payroll and employer expenses – such as national insurance and pension contributions.
This will also be a factor for anyone that wants to set up a limited company, as you will class as an employee of the company and therefore earn a monthly salary.
Alternatively, if you’re considering hiring any contractors or freelancers, you will need to factor in where you will hire people from. If you plan on using an agency or external recruiter, you must factor in their fees on top of the contractor’s salary.
7. Equipment and supplies
What equipment and supplies do you need to get started with your business? These could be big-ticket items, such as computers, machinery, trade tools, office furniture, or even vehicles.
But as well as thinking big, you should also think about every day or unseen costs that you will also need, such as:
- Uniforms or protective clothing;
- Stationary;
- Power cables/extension cords;
- Signage;
- First aid supplies;
- Kitchenware;
- Refreshments (never forget the tea).
Think about the items you will come into contact with and use daily. Then, make sure you add its cost to the list.
8. Technology or subscriptions
As well as physical assets and supplies, there will be a list of technological services and subscriptions that you will need to factor into your business. This will include any software licenses you may need (i.e. Microsoft or Adobe), as well as data, storage, and security.
Bills and utility also come under this heading, so think about the power, gas and water costs of your building – as well as the internet. If you have a business phone, you will also need to cover the costs of the mobile network.
You’ll also need to consider any third-party programs or applications you might use, such as CRM, marketing or accounting software.
It is worth noting that some of this software can come with free tiers or options.
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9. Stock
If your business model relies on selling stock, you must source where and how you will get it. Ask yourself:
- What manufacturers, supplies or distributors are you going to use?
- How much do they charge?
- How much stock do you need to start?
- Where will you store your stock and how much room do you have?
- How much does it cost to move your stock?
Our recommendation: don’t go all in on your first order. Test the waters first and reassess when you have more data.
10. Delivery
If you ship out physical items to customers, you should factor in delivery and packaging costs and which provider you will use. This will also help you price your product, especially if you charge for delivery.
Although it might be tempting to go for the cheapest option out there, unboxing plays a key element in how customers see your product and brand. It’s why Apple have spent so much time and money on designing their patented white boxes – so users get that slick experience from the very first second. Obviously, you don’t have the money and resources of Apple, but it could be worth researching and costing custom printed boxes or inserts to add that extra something special.
11. Marketing and promotion
You got to spend money to make money, right? In the case of marketing your business, that is true. There’s no point putting all this time, money, and effort into a business if your audience doesn’t know that you exist.
Marketing is all about promoting your business to your audience, getting them to trust your brand and ultimately spend money on your products and services.
There are tons of ways that you can market your business, some of them free (including social media). But depending on your business and tactic, you might want to set aside some money to spend on paid advertising or creating assets for your business.
If you’re looking for some marketing tips, we’ve got a host of guides and ideas to get you started, including:
- How To Promote Your Business On Google
- 6 Best Website Builders For Small Businesses
- Top 17 Small Business Website Design Tips
- How To Convert More Website Visitors Into Customers
- How To Market A Small Business On Social Media
- What’s The Difference Between PPC & SEO?
- 7 Small Business PPC Tips
- 7 Affordable Small Business SEO Tips
12. Website
More and more business is happening online. If you don’t have a website, your customers won’t be able to find you.
Having a website comes with varying costs, from hosting and building to professional design or copy work that you might want to invest in. For most startups, we’d recommend using a website builder as they offer relatively inexpensive packages that cover most services in one. Some builders even offer free tiers to get started, but we wouldn’t rely on those options forever.
13. Formation fees
If you’re planning on forming a limited company, there are formation fees that you will need to pay. In many cases, though, this cost will be at least £50.
In fact, if you don’t want to handle the paperwork, you can hire a company formation agent to form your company on your behalf for just £52.99 or under.
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14. Taxes
No company is exempt from taxes. If you’re a sole trader, you will be liable to submit a self-assessment tax return each year and pay income tax on your profits, as well as Class 2 and 4 National Insurance.
If you’re a limited company, you will be expected to submit annual reports and pay corporation tax at a fixed rate.
You will also be liable to pay VAT if you are VAT registered.
Although it will be hard to work out your exact tax bill until you get a clear idea of your expenses and profits, an accountant could help you complete a financial forecast to better understand what money you will need to set aside for your tax bills.
15. Rainy days
Finally, it’s always a good idea to set extra money aside for overlooked or unexpected expenses that you might come across. Having that extra cushion will always come in handy.
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How to calculate startup business costs
We’ve given a lot of examples of startup business costs to consider when creating a business in the UK. Now it’s time to get into how you use this list to calculate your expenses.
First, use the above costs to list all the necessary expenses. During this step, it might be useful to separate these items into one-time expenses (i.e. equipment) and ongoing costs (i.e. technology).
Once you have a full list, it’s time to research how much each item will cost your business. This step could involve talking to different vendors to get their price lists, or even scouting properties available for rent.
With a full list of estimates, it’s time to get your total amount. When looking at ongoing expenses, it might be useful to break this down into how much it will cost you for the first 6 or 12 months of your business. Then, add a safety cushion to help you account for any hiccups, price increases or expenses you’ve overlooked.
With this figure, you’ll be armed with the data you need to complete your business plan and apply for the investment needed to get started. And for anything else that you will need on the way, you can always rely on Business4Beginners for advice, tips, and help.
