Every year thousands of Brits set out to start their own businesses. Whichever route you take, the cost of starting a business can sometimes feel like an obstacle to success.
Every year thousands of Brits set out to start their own businesses. Some take their existing employed role, for example as a hairdresser, personal trainer or graphic designer, and turn it into a one-person enterprise. Others spot a commercial opportunity and do all they can to capitalise on it. Another group monetises their favourite hobby, whether that’s hang-gliding, crafting, pet care or gardening.
Whichever route you take, the cost of starting a business can sometimes feel like an obstacle to success. Here, we’re looking at the outgoings to be considered at the planning stage, how to calculate start-up costs, and how to secure the capital you need.
Steps to starting a new business
At the very beginning of starting a new business, everything is very exciting. Simply deciding you want to be a business owner is an empowering thing to do. However, there’s also a huge amount of work to get through.
The first step is to know your competition, which means doing some serious market research. Before you’ve written a word of your business plan, before you’ve applied for your new business loan, before you’ve even named your business, market research is key. The form it takes is up to you. You might use questionnaires, social media, chatting with friends, or simply observing businesses in your field locally, watching how they work and the products / services they offer. Talk to the people you’d like to have as customers and find out what they’re looking for.
Look for gaps that your business could fill and try to define what your USP (unique selling point) will be. This will inform your brand and how people ultimately think of your business. For example, if you’re setting up a children’s nursery, maybe you’ll offer parents flexibility that’s not available anywhere else. Or, if you’re opening a bakery, maybe you’ll specialise in extraordinary occasion cakes.
Once you’ve got a clear idea in mind of what your business will be and what it will offer, it’s time to decide where it needs to be. If you’re setting out as a marketing consultant or online retailer, you could keep initial outlays low by basing yourself at home. Or, perhaps premises are essential to your business plan. If you’re opening a dog grooming parlour or an art gallery, for example, you’ll need both space and great high street visibility. Business start-up costs can quickly grow so be realistic about what’s essential and what you can wait for.
Start-up costs for new businesses
The cost of setting up a business can vary wildly from one enterprise to the next. For some, all that’s required is a back bedroom and a laptop. Others need a shop, a full complement of staff, fancy equipment, and a full-scale marketing campaign to get going. Escalating costs can stop some businesses before they even begin. To avoid this, double check which items are essential and which, at this early stage at least, are unnecessary luxuries.
Sometimes it’s better to apply some patience and wait until the profits start rolling in before you invest in business vehicles, hand-painted signage or costly marketing materials. At start-up stage, you’re building the foundations for a healthy financial future.
How to calculate start-up costs
The question of how to estimate start-up costs when you have limited experience can leave you feeling a little perplexed. Begin by noting down everything you’ll need to start trading. This should be a comprehensive list including premises, essential equipment and, potentially, staff.
At this stage you should be thinking of ways to budget at every opportunity. Ultimately, you may want to take out a business start-up loan or chase some other form of investment.
Frequently, new business people forget to account for some key expenses. For example, if you run a gym, what insurances or Health & Safety certification might you need, and what will these cost? Or, if you do decide to employ someone, you might have accounted for their wage, but not their recruitment or training.
Another regular bill that sometimes comes as a surprise is business rates. Essentially, this is a council tax for businesses and if you’re trading from a commercial building, you’ll be liable to pay it from the very beginning.
Financing a new business
Often, the one obstacle standing in the way of an individual and their dream of entrepreneurial endeavour is the question of how to go about financing a new business.
When it’s time to think about how to finance your small business and get the money together, there are four main sources of cash - and you may want to access a combination of them all. They are savings, loans, investment and grants.
Using personal savings can be a great idea but it’s always worth keeping a little back for a rainy day. Loans may come from your friends and family, brokers or from a high street lender and investment from another established business, or from an individual, can be very welcome at this stage too. However, it’s important to establish the conditions of the investment – what is expected in return? If you’re starting a social enterprise, you may be able to access a small business grant.
Lots of very successful businesses of all sizes have begun life with the help of a small business start-up loan. Creative entrepreneurs, inspired thinkers and hard grafters have all found that a little leg up can sometimes be all that’s needed to turn the seed of an idea into a thriving enterprise.
Taking out the right small business loan may help you to start trading from a stronger position, with everything you need in place. It may come as good news to learn that the first few years you’re in business are usually the most expensive, when you look at outgoings as a percentage of turnover. After those early days, lessons are learned, equipment is in place and initial costs (for example recruitment and training) tail off a little. Your business may start to become more affordable, and hopefully more profitable.
However you choose to do it, financing a new small business may not be easy but, when you’re up and running and in control of your own destiny, it’ll be well worth all the hard work.