Whether you are already in the process or just considering the idea of starting a business, it can seem like a costly endeavour. Most companies are launched with small investments but there can be many different costs involved with any new venture. These costs may not always be clear from the beginning.
If you are planning to start your own business, it is very important that you correctly calculate all the potential costs you may have, and to also make sure you have enough money to cover this. Irresponsible budgets and not planning for unexpected costs are just two reasons why many businesses can fail. You must try to make sure you have enough capital to sustain your business over any given period. So which costs do you need to consider before starting a new business?
Many new businesses owners do not seek the right professional advice before starting their new journey for the first time. The planning stage is one of the most important aspects to consider when starting a new venture. You may require specialist advice on the financial and legal aspects of the business. When creating a budget sheet, remember to include any costs for accounts and legal consultation. You may even receive your first consultation free of charge from an accountant or solicitor, especially if they want to attract you as a long term client themselves.
Incorporating the company
You may choose to register your company as a limited company, this is sometimes referred to as ‘incorporating the business’. Many people may use a third party service to help them with this process but it can be completed for a much smaller fee by using Companies House directly. Depending on the type of business you set up, prices will start from around £10+. Remember that The Companies Act requires any company director to also provide their main residential address to Companies House. If you are using your home address as your business address, it is worth noting that this will be accessible by the public. Privacy is essential, you can pay an additional fee to a third party company for an address hosting service. Accountants, solicitors or agents can help you with this.
Your business premises
You will need to find a business premises to operate from, unless you decide to work from home. Most businesses will lease their office or building from a commercial landlord, only a small percentage will own their own business premises. Before signing any lease contracts, make sure you’re aware of your obligations like how often will rent be paid, contract duration, and what is covered and what isn’t. Serviced office leases may be worth pursuing if you require office space instead of a retail premises. These have more flexibility such as shorter term commitments, the chance to pay monthly and further scalability in comparison to a retail space. Furthermore, serviced leases normally have business rates included, these can sometimes be a big expense with conventional options. If you are able to work from home, you can save a lot of money but remember to include any utility bill increases as well as set up costs for computer equipment and office furniture.
Equipment, stock and tools
Stock will most likely be one of your largest expenses if you are in the retail sector. Many suppliers will often want payment within 30 days. This can help your cashflow situation during the early months of business. To make the most out of this credit period, you may wish to only purchase stock until the very last moment when it is necessary. Your stock expenses will be dependent on the type of business you operate. It is a good idea to compare different prices and suppliers before placing any orders to ensure you are getting the best deal. Ideally, you will want to have any tools and equipment that you require before you start trading, these will be covered as an upfront initial expense.
Marketing costs can be a big expense depending on the nature of the business and how many clients you have to begin with. You need to make sure that any potential customers are well aware of the products and services you provide. Marketing costs can vary greatly depending on which method you choose. Often, many businesses do not account for enough budget allocations for marketing expenses. If you are unable to inform and attract customers, how do you expect to operate successfully.
As a business, you should make sure to have the right insurance in place before you begin trading. Some of the most common business insurance policies you may require are:
• Public liability insurance
• Employers’ liability insurance
• Professional indemnity insurance
For example a car garage owner who sells used cars will likely require cover for motor trade insurance. They will need public liability insurance to protect them against injury or damage compensation claims made by clients, customers or suppliers, whether at the business premises or elsewhere. Employers’ liability insurance will be required if they employ anyone permanently or on a casual basis. There are many different types of business insurance available to protect you. We recommend taking a look at our guide on business insurance for further details, it covers the legal aspects as well as in depth explanations for each type of business cover.
You may be expected to travel frequently to client sites and business meetings. Remember to factor in any travel expenses within your budget. You will also be able to claim against your tax bill for any eligible deductions. Public transport can sometimes be cheaper. If you are purchasing a vehicle, remember to account for insurance, road tax, breakdown cover, service costs, and fuel. If you plan to use your personal vehicle for business use, check with your current insurance provider to see if business use is covered.
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