In today’s competitive business environment, simply having a great idea for a business no longer guarantees you success. The UK is clearly coming out of the economic slump that began back in 2008, and this is backed up by figures released by Companies House that reveal a record-breaking 581,173 new businesses were registered in the UK during 2014. However caution still has to be exercised here as, according to the Daily Telegraph, over half of all UK start-ups fail within five years. That figure is made even more sobering when Theo Paphitis, quoted in the Guardian newspaper, states that the 50% failure rate occurs within 2 years.

While it might be easy to blame the recession for more recent business failures, in truth that is not the main reason start-up businesses fail. The main reason, and the same reason most businesses in general fail is cash-flow, or rather a lack of it. Cash-flow is different to income or profitability as it relates to the actual availability of money to maintain the health of a business. Irrespective of when a business may receive payment for goods or services that have been ‘sold’, suppliers of goods and services to your business are not going to wait. If you can’t pay your bills, irrespective of however much money you have ‘coming in’, then your business will eventually cease trading.

Now for all start-ups, a thorough business plan is essential. As the well-known expression goes, fail to plan, plan to fail, and that is so true in business today. Of course with your business idea and model, you may well have worked out your profit and loss figures, made projections and forecasts, but before you let the horse run away with the cart, you have to accurately work out how much it is going to cost you to actually set up your business.

This can vary considerably depending on the nature of the business you have in mind. A painter and decorator will not require the same equipment or stock as an online store or mobile hairdresser. However the principles of setting up a new business are the same and below you will find the most common costs involved in setting up a business.

Most common costs involved in setting up a business

Premises

You may be starting off working from home or you may decide to rent premises to begin with to reduce the level of available cash required or amount of borrowing needed to start your business. You may decide to buy premises outright with cash so you know for future years you do not need to worry about rent as an outgoing. Don’t forget that you may need signwriting to attract passing customers, or simply to give your premises an identity your customers can relate to.

Maintenance

You will need to maintain your premises. If you are renting then you will likely be responsible for the inside of the premises, while if you own them outright, then you will have external maintenance to consider as well. If in doubt of the costs, get a maintenance contractor in to give you a quote for annual maintenance of the building.

Services

Water, electricity, telephone gas and internet connection need to be estimated accurately. If there was a previous tenant or occupants of similar premises nearby, find out what the cost of utilities has been for them. Of course on top of these you will have local authority payments of business rates. Though if you are a new business some offer up to a 50% reduction on business rates if you are a sole trader or a new business.

Insurance

This is an area you should never skimp on. Your insurance is your safety net. However do not be blinkered when it comes to insurance. There are various policies you will need depending on the nature of your business. You need to insure any premises if they are not insured by a landlord. You will need to insure all vehicles, equipment and stock. You then need to insure yourself in case of accident or injury so that you can survive financially in the event of an accident. If you have staff helping you then by law you have to insure them as well under an employer’s liability policy. You also need to look into insuring the business itself, so in the event of a fire or flood forcing you to stop trading, you still have an income based on loss of trade. You may be able to factor in a reduction in insurance premiums if you have a burglar/intruder alarm system installed, but don’t forget to include the cost along with the usual monthly charges. Take a look at our full Insurance Guide.

Vehicles

Once again your business may not need one, but if it does, look into the costs of buying against leasing vehicles and seek advice from an accountant as to which can be cheaper in the long run. Factor into the equation the costs of insurance petrol, wear and tear, servicing, etc.

Equipment

From power tools to workbenches, pressure washers to food mixers, computers to compressors, the list of equipment you will need will vary considerably from business to business.

Branding

Have you considered creating a brand image for your business to appear on stationary, advertising, vehicles, website etc.? Making an appointment with a branding agency to establish the likely costs of such an exercise.

Online presence

On top of branding you will likely need a website, while if you are starting up an e-commerce platform, then you will need an extensive one. Get quotes from a reputable website design agency. Once you have your website you then need people to find it, which is where a solid SEO campaign will be required. Set a reasonable monthly budget for this.

Marketing

This can either be done via the internet or through more traditional channels such as newspapers, television, leaflet drops, etc. You need to invest in your business to succeed and effective marketing is essential for your success. Calculating the costs of an effective marketing campaign are essential.

Stock

Yes, the obvious outgoing if you are a startup business, whether acting solely as an online retailer, or as a face-to-face business to customer seller.

Staff

It may be that you have to employ two or three additional members of the team, if not now, then certainly in the future. Do your calculations and remember that as an employer you are responsible for employer’s liability insurance, National Insurance payments, tax payments, and of course wages.

Business paraphernalia and stationary

You may need business cards, company headed paper, envelopes, stamps, etc.

Professional fees

There is every likelihood you will have to engage the services of a solicitor, especially if buying business premises. In addition to that you will doubtless also be requiring an accountant, not just for when the money starts coming in, but from the very onset so you can take advantage of any available tax incentives. Engaging the services of a small business advisor can also cost money in the short term but it is a service which can save you money and save you from making costly mistakes.

Working capital

This is often the business ‘expense’ that is forgotten about, but it is almost like the blood bank for a business’ body. Businesses have outgoings before income can be generated. That means there is often a lag in time between being a business and being a profitable business. Your business plan will need to make an accurate estimation of how long it will be before you consider the business will become profitable, and then create financial reserves to cover you for that period of time.

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1 kettle, mugs, coffee/Tea, milk and sugar!

If you have already thought of every point covered above that applies to your soon-to-be-launched business, then you have taken a massive stride towards that business being a success. If there are a number of elements you missed out or never even thought of, don’t panic. While having a great business idea can’t guarantee success, having a lack of business experience should be no barrier to you trying to succeed, just make sure you seek advice from those who know about business and who can save you from making any potentially fatal mistakes.

Tips

  • It can be wise to overestimate you costs slightly as there are always unexpected expenses. It helps forecasts be a little bit more realistic
  • Include all costs, no matter how small they seem. They can very quickly add up.
  • Be sure to retain all receipts for claiming the TAX and also VAT if applicable.
  • Keep costs low. When starting a business the first year can be the hardest so make sure to cease any unnecessary spending.
  • Make sure you have enough to live on, depending on your business you might not be able to earn a liveable wage for the first few years of trading.