The first thing on most aspiring business owner’s mind is money. You can have a million-pound idea, but does that mean you need a million pounds in the bank to get it off the ground?
Thankfully, most business ideas won’t actually need a million-pound startup investment but for the majority of business ideas, you will need some cash to get it up and running.
Smart financial and business planning will help you estimate your startup costs with greater accuracy – which we’ll discuss in this blog.
How much do I need for my startup?
This is one of those ‘how long is a piece of string?’ kind of questions. It really depends. For instance, a freelance copywriter will have fairly low initial costs compared to someone who manufactures kitchen units.
New research revealed that starting a business in the UK costs £22,756 on average, including things like incorporation costs, accountants’ fees, legal expenses, HR overheads, and general administration.
This is just an average though, and the real number depends on things like the type of business you want to start, whether you need employees or business premises, and other things like your budget. For example, the ballpark cost will look a lot different for someone who has secured investment or has a non-repayable business grant at their disposal.
What’s the difference between start-up costs and start-up assets?
This is important to understand, because they all play a key role in setting your business up, but each cover different types of startup expenditure. You’ll need to know how the categories differ so you can include accurate information about them in your business plan.
Start-up costs
Start-up costs cover the money you must spend to get the business to a point where it can start trading. These are non-recurring expenses that are sometimes referred to as ‘sunk costs’ because they’re ‘sunk’ into your business venture, meaning they can’t be recovered.
Typical business start-up costs include:
- Registering the business with Companies House if you’re forming a limited company
- Legal fees, including trademarks and licensing
- Business insurance
- Accounting and bookkeeping fees
- Branding and website (including web hosting and business email hosting)
- Signage
- Business rates and rent if you have premises
Start-up assets
Start-up assets describe the equipment, machinery, vehicles and inventory (or stock) required to get your business trading-ready. Start-up assets are different to start-up costs (expenses) and are treated differently when it comes to your bookkeeping and accounting.
Common examples of business start-up assets include:
- Stock if you are selling physical products
- Office furniture
- Office supplies
- Tech equipment, such as a laptop
- Vehicles
How do I estimate my startup costs?
Once you understand the various things you need to launch your business, you can then start consolidating them and listing the costs.
Having this big-picture view of your startup costs will help you plan ahead and spend more strategically, so you don’t spend all of your money before you’ve even opened for business.
Here are 3 things you can do to help estimate your startup costs.
1. Figure out what assets and resources you need
The first thing you need to do is list everything you’re going to need to get your business ready to sell, including:
- Likely start-ups costs and start-up assets
- First-year fixed expenses – all of the costs you’ll incur in your first year no matter how much money the business makes (e.g. utilities, annual fees and salaries)
- First-year variable expenses – these are the costs that will fluctuate or change depending on how sales or production changes (for example, raw materials you need to buy for products that you sell)
2. Calculate the costs of these assets and resources
Itemise everything from the list above and put costs next to them. It might not be possible to pin down precise costs for absolutely everything, especially variable expenses, but you can aim to be as accurate as possible.
3. Create a financial forecast
Use your business plan and your financial figures to create a forecast for how much you think you will make in the first 12 months of trading, breaking this down by month. This will also help you work out how much you should be charging to cover your costs!
Subtract your variable and fixed costs from these monthly forecast figures to calculate your profit or loss for each month. From here, you can then forecast how much your business needs to make in order to break even and become profitable.
Should I get an accountant?
If you’re starting a new business and looking for some support with your expenses, a qualified accountant can be a huge help. They will be able to offer you invaluable guidance when it comes to things like:
- Nailing your financial forecast
- Writing your business plan
- Loans and other funding
- Budgeting and protecting your cash flow
- Understanding your allowable expenses
- Claiming tax relief to cut your tax bill
Although costs can vary, there are some cheap and affordable accountants out there who won’t compromise on quality of service, and their expertise can make a big difference to your business – so it’s worth considering.
Navigating the startup of a new business can be complicated, especially where finances are concerned. Check out our accounting support hub for more help, or to ask a tax question for free!
