According to research, the average UK startup budgets £5,000 to launch and spends £22,756 in their first year. However, as only 42.4% of SMEs survive past their first five years, the key is budgeting enough to not only launch, but to survive and thrive in the long-term.
Approximately two-thirds of small business owners experienced unexpected costs during their first year, leading to reduced profits and stunted growth. By strategically calculating your own business startup costs and factoring unexpected expenses into your budget, you increase your chances of success.
Common business startup costs
The specific startup expenses, assets, variable costs, and fixed costs you’ll incur in getting your small business off the ground depends on the industry you’re in, but there are typical costs for every business.
In general, there are 13 common business startup costs to be aware of. These include:
- Research
- Equipment
- Registration fees
- Business premises
- Inventory
- Website
- Marketing
- Branding
- Office supplies
- Professional services
- Business insurance
- Payroll
- Software and licences
To help future business owners start off on the right foot, it is important to understand all of these aspects and how they relate to your business.
Delving into more detail, focusing on registration fees, inventory, marketing, professional services, and business insurance, it is important to understand that:
Registration fees
While registering as a sole trader is free, if you are registering a limited company, limited partnership or as a limited liability partnership, you will usually have to pay an incorporation fee. Depending on the structure of your business and the method you choose, these costs can vary anywhere between £10-£100, but limited companies can register for free with Tide!
Inventory
If your new business is in retail, manufacturing, wholesale, distribution, or hospitality, you’ll need stock to be able to hit the ground running. Estimate your startup inventory costs by working out what products you’re going to sell, how many products you’ll need to open your business, the recommended retail price (RRP) of your products, and the product mark-up (the average is between 30% and 40%).
Marketing
According to a recent study, you can work out your marketing budget by calculating your revenue and company size. New companies should spend 12%-20% of their gross revenue on marketing. This reduces to 6-12% when established.
Professional services
Whether it’s accounting, legal or IT assistance, or business mentorship, being able to turn to someone skilled in a specific area can help you prevent costly mistakes down the line. In some cases, you may be able to get advice for free, but the average price range for business consultants is between £95-£350.
Business insurance
The typical types of insurance new businesses in the UK need include building and contents insurance, professional indemnity insurance, public liability insurance, employer’s liability insurance and vehicle insurance.
Financial preparedness helps you to budget for expected and unexpected costs. The best-practice is to overestimate how much cash you’ll need to get started in your business plan. A clear-cut view of your financial health can help you make better business decisions, keep your business afloat and ultimately boost profits.
Some of your required startup costs will have defined prices that are easy to find. For example, the price of a website builder like Squarespace can be found on the company’s website. Other costs, such as the price of raw materials or office suppliers may be hidden from public view, so you may be required to do some research.
Sarah Young, VP of member engagement at Tide. For more information, Tide has created an extensive guide which defines the types of startup costs you may encounter, also exploring the importance of calculating business startup costs, with some tips of how to do so.
Startup stock photo by Kate Kultsevych/Shutterstock
