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How Much Does It Cost To Start A Business?

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How Much Does It Cost To Start A Business?

Starting a business can create various costs such as startup costs, insurance and day-to-day running costs. According to Geniac, the average start up costs of UK businesses is £5,000 to launch and the business spends a further £22,756 throughout their first year.

In this blog post Opayo will outline the various costs involved in starting a business and why it’s important to forecast start up costs. It’s important for potential business owners to be aware of the costs when starting a new business so they are prepared for every eventuality. 

Why Do You Need To Forecast Start Up Costs?

It is crucial to forecast start-up costs of your business so you know what to expect and can plan the finances of the business accordingly. The key to starting a business successfully is budgeting and planning: both for the start-up and the running of the business in the long run. There are costs that small business and start-up owners should be aware of before starting their business. This might involve figuring out if they have enough capital to begin, avoiding unexpected costs, understanding financial viability of business, understanding their financing methods and determining a reasonable budget for their business. 

Business Start Up Costs To Expect

There are some business start-up costs that most businesses can expect to pay while setting up their company. You can find out more about these expected costs below which include one time costs during start-up as well as ongoing costs that the business will continually have to factor into their finances. 

  • One Time Costs 

A business will face one time costs especially during start-up, which covers all the initial one-off costs needed to start a business. These may include the cost to incorporate your business, registration fees such as if you are registering as a limited company, purchasing some expensive equipment or machinery and getting patents and supplies. These are considered one time expenses as they aren’t repeated or ongoing like other costs a business will have to continually pay. They also do not have a great lasting effect on the business’ expenses, although they affect the business’ cash flow at the time of purchase. 

  • Ongoing Costs

Ongoing costs are those which most start-up businesses experience and also need to continually pay once their business has been established. Ongoing costs include expenses that may be contractually agreed upon such as utilities, rent, web hosting, insurance and any costs of marketing campaigns. These costs generally don’t fluctuate like one time costs. 

Ongoing costs can be fixed or variable. Fixed costs are consistent such as rent, whereas variable costs are those which depend on sales of the business’ product or service. Variable costs may depend on factors such as seasonal demand. 

Start Up Costs Examples

This table will outline some examples of the expected costs a start-up can be expected to pay in the business’ first year. Opayo will divide these costs into one time costs or ongoing costs for greater clarity regarding the overall expense of starting a business. 

One Time Costs

Ongoing Costs

Research (e.g. market research, surveys)

Rent

Equipment

Utilities

Office supplies

Insurance

Registration fees

Payroll

Licenses and permits

Sales and Marketing

Brand design (e.g. logo, website)

Technology expenses (e.g. software licenses, website hosting, email accounts, phone contracts)

 

Delivery

 

Production

 

The average cost of starting a business in the UK is around £12,600 according to a press release from Lloyds Bank. Please note: these costs will vary greatly from business to business and are just a guide of expenses. 

Businesses With Low Startup Costs

When looking to start a business, you may be interested to know some examples of businesses which generally have low start-up costs and are therefore cheaper to establish. 

Businesses which are run from home will avoid ongoing costs of rent and utilities of an office as well as one time costs such as office supplies. Online services are similar as there are no physical premises like a shop to pay rent and utilities for.

Dropshipping is also a method of business which has lower than average start-up costs. This kind of business involves a store purchasing the items they are selling from a third-party supplier and ships them directly to the customer. This means they don’t keep any products they sell in stock and don’t have to handle the product themselves. This saves costs on shipping as they are able to cut out the ‘middleman’ and go straight from the supplier to the customer. 

Digital products and marketing services are also low-cost businesses that can be started quickly and easily. Online courses can also be taken for a low cost to develop your marketing skills. 

Financing Your Business Start Up

There are many ways a start-up can support themselves with the various costs they’ll have to pay, or they may be able to secure capital through funding. Some ways a business can be financed are:

  • Bank loans. A lot of banks offer unsecured loans up to £250,000 which can last over 1 to 15 years. 

  • Start-up loans. These can be government-backed, which involves an unsecured small business loan between £500 and £250,000. These start-up loans have a fixed interest rate of 6% per year which is payable over one to five years.

  • Start-up grants. These are obtained from companies like British Small Business Grants, InnovateUK and Horizon2020. They do operate on a case-by-case basis, though. 

  • Seeking investors. Investors and entrepreneurs are often looking for an investment opportunity. They can invest in your business in exchange for equity. 

  • Crowdfunding. This refers to businesses funding their venture with small amounts of donations from a large number of individuals (the ‘crowd’). 

Conclusion

It is important to have an idea of what costs your business may incur as well as forecasting these costs, including one time and ongoing expenses, so that you are prepared financially for what you’ll have to pay. 

You can check out Opayo’s guide and tips for setting up an online shop here. 

For more information on the various other services we provide at Opayo, view our recent blogs. For further guidance on how much it costs to start a business, get in touch with a member of our team today.