How Much Does It Cost To Start A Business?

The quick and easy answer: it depends. Every business is different, so things like how quickly you want to get things done, the industry you work in, and even how fancy you want your business cards will affect your start-up costs.

This is where some sort of business plan comes in. Putting together a plan of action will often help you gauge how much you’ll likely need to spend. In this article we’ll get into working out how much you might need to start a business based on your own unique circumstances and goals.

Why do start-up costs vary so much?

There are lots of factors which will affect your start-up costs. As well as the industry you’re looking to break into and how ambitious your initial goals are, things like location and the way you operate can have an enormous impact.

For instance, do you need a bricks-and-mortar location for customers, or can you operate entirely online? If you do provide goods and services online, will you need a dedicated office, workshop, or warehouse space?

It almost goes without saying, but the cost of renting a physical location (especially somewhere like London) will massively increase your overall start-up costs, so give some thought to just how necessary this really is. After all, you don’t want to try and run before you can walk.

Why not set it as a future goal you can build up to?

Different kinds of costs for start-up businesses

Many small businesses underestimate their start-up costs. Which is pretty fair if you’ve never done this before and don’t know what to expect. They tend to sneak up from every direction, so it’s useful to think about them in terms of when you’ll need them.

For instance, the costs you’ll need to start the business (or even before that) might be different to the ongoing expenses you need to run it.

Typical start-up costs for businesses

Your start-up costs will vary depending on what you’re starting, but will typically include:

Ongoing monthly business costs for start-up businesses

Again, it largely depends on what kind of business you start, as well as the setup you choose.

If you open a physical shop or move into an office, say, you’ll have to cover rent and utility costs on a regular basis. This is where it’s useful to think about ‘fixed’ costs, which stay the same no matter how many sales you make, versus variable costs which will change depending on the volume of sales.

We explain how this works in more detail in a separate article, but it will help you work out what your ongoing monthly costs could look like.

Hidden and overlooked costs

No matter how well you know your business or the industry, things always crop up. OK, so you obviously can’t plan for everything, but you can account for the possibility that things can (and usually do) go wrong.

For instance, after a couple of months of operating, you might suddenly find yourself with an unexpected repair to take care of. Or you might make your first order, and realise you forgot to account for shipping costs in your pricing strategy.

Some people find it useful to visualise the process of making (and then fulfilling) a sale. What do you need to spend to reach that point? How much will it cost to fulfil it?

It’s worth repeating this process for different timescales too. For instance, is there something you need to do on a monthly basis? On a long-term basis, what costs will crop up if you need to take a sick day? Don’t panic – questions like this just help you feel more prepared.

How to reduce start-up costs
Every business aims to be as efficient as possible. For start-ups this generally means starting small and not trying to scale or expand too quickly for your own good.

It’s good to be ambitious. It’s also good to be smart about it. After all, you’re playing the long game here.

For example, could you outsource tasks – or even entire projects – to external contractors, or do you need to take on staff straight away?

This approach can be the most cost-effective if you’re just starting out so you’re not paying wages as well as making National Insurance and pension contributions.

In short, though, planning matters more than anything else. You might find you change the timeline on some of those goals so you’re not spending so much at once. You can always revisit them once you’re out of the start-up phase!

Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.