So, you’re ready to make your business a reality, congratulations! Becoming a business owner is a huge achievement and could become one of your best decisions. But, it’s important not to get too lost in the idea of becoming a self-made millionaire. Setting up a business isn’t easy, and one of the most important aspects you need to be realistic about is how much your startup is going to set you back.
Even with a modest budget, you can get your business off the ground, but the last thing you want is to be completely unaware of the costs you might run into - that’s where your pre-launch strategy and planning come in.
Here’s some insight into some of the biggest expenses associated with setting up a business.
1. Office or retail space
Depending on the type of business you’re setting up, whether that’s an agency, medical practice, or retail store, you may require a dedicated physical space, and the cost of rent can be high. Rent-wise, traditional offices and stores are pricey, to say the least, and usually come with a fixed contract, so you’ll have to be confident in the long-term financial health of your business. This is especially true for buildings in prime locations like city centers or enterprise hubs.
Think carefully about whether you need a physical location. Could you look for a more cost-effective option like hiring remote employees through services like Remote? If you’re offering a service such as beauty treatments, could it be more cost-effective to offer services from home? Have you considered hot-desking or using co-working spaces? There are so many options to explore, so make sure you know the costs associated with each one before you dive in head first!
2. Salaries
You’ll need to pay your new employees from day one, so be mindful of which roles you need to fill at the beginning, and how they’re going to add value to the business. As a new business, you don’t need an office full of 30 staff members! Nevertheless, even if you hire just a few roles, you need to cover their salaries, so hire gradually to give yourself time to grow your business to the right level to be able to expand your team.
Start by identifying the most critical roles necessary to launch and sustain your business operations. Key positions might include roles in management, sales, customer service, and essential technical staff. Focus on hiring individuals who can perform multiple functions or who have the flexibility to adapt as your business evolves.
Hiring doesn’t always have to be in-house. Working with freelancers, contractors, or experts from overseas can be a cost-effective option. Freelancers and contractors can provide specialised skills for short-term projects or part-time needs, reducing the need for full-time salaries and benefits. This approach allows you to scale your workforce based on project demands without the long-term financial commitment. To discover what salary to pay, start with salary benchmarking here.
3. Legal costs & insurance
When setting up a business, legal costs and insurance are crucial components that ensure compliance and protection. The type of insurance you’ll need will depend on your business; a construction business will need General Liability Insurance, whereas a digital marketing agency will need Professional Indemnity Insurance, for example.
Insurance doesn’t usually break the bank, but legal expenses can become pricey. These include fees for registering your business, obtaining necessary permits and licenses, and consulting with legal professionals to draft important documents such as contracts, partnership agreements, and terms of service. However, as a new business owner, working with a lawyer to navigate the complexities of business law can help avoid costly mistakes and legal disputes in the future. Additionally, ongoing legal support may be needed to address any issues that arise as the business grows — this can be expensive but well worth it!
4. Equipment & supplies
Every business requires specific equipment and supplies to operate efficiently. These costs can vary widely depending on the nature of the business. You may need to account for office furniture, laptops, software, display units, safety equipment, materials, uniforms, and stock, which can quickly add up to thousands of pounds.
Ensuring you have the right equipment and supplies is critical for operational efficiency, so it’s important to budget for initial purchases and ongoing maintenance or replacement costs. The upfront costs can be significant, but leasing can ease this strain and provide flexibility to upgrade to newer technology. However, buying equipment can be more economical in the long run, especially for essential and frequently used items. Consider your options.
5. Marketing
Marketing and promoting a new business is almost a non-stop task. Digital marketing forms the basis of many start-ups’ efforts to attract and retain customers, so setting a budget for organic and paid marketing is always a good idea. Professional SEO services are not cheap, but working with the right experts can get your business to a great starting position that builds authority for the future.
There’s still plenty you can do to develop your marketing strategy yourself. Building your social media presence, writing blogs, and increasing your PR activity will all help your new business. Another part of marketing is developing a website. From the design to the technical development, expect to pay thousands of pounds for a professional, responsive, customised website.
Using tools like GoDaddy’s website builder can be a great starting point for your website, saving you money, and helping you develop skills that will be useful in your business. Remember, marketing can deliver great ROI, but don’t max out your budget when you’re still uncertain about the direction of your business.
How much money should I set aside for unexpected expenses?
It's advisable to set aside at least 10-20% of your total startup budget as a contingency fund to cover unforeseen expenses. This helps ensure you have the necessary cash flow to handle these surprises without disrupting your business, especially in the early stages when your revenue might still be unpredictable. If you are struggling with expenses, consider looking into investors and creating a pitch deck accordingly.
How can I manage cash flow effectively in the early stages?
Create a detailed budget, monitor expenses closely, prioritize invoicing and collections, and maintain a cash reserve. Using accounting software can help track and manage cash flow efficiently.
Setting up a business involves many expenses, each critical to the success and growth of your venture. But, being strategic and considering cost-effective alternatives where possible can pave the way for a smoother startup journey and avoid financial pitfalls. Good luck!