When it comes to launching a brand-new startup business many entrepreneurs miscalculate how expensive it is to launch, and what sorts of things that they will need to spend money on to make their business successful.
We explore some of the main start-up costs that small business owners may need to consider when they set up a new business. Not all these business startup costs apply to absolutely every business, but they might apply to certain types of business. Also, many of these costs will apply to all businesses, so it is a good idea to familiarize yourself with some of the common expenses and business costs that entrepreneurs should have planned and covered for in their business plan.
Research & Development Costs
When it comes to research and development, the costs here can be astronomical depending on what it is you are hoping to release. If you are bringing a brand-new concept to market, the cost of development might be so high that you will immediately require third party investment into your business. If you’re an entrepreneur with an existing track record, this might come from venture capital companies.
These costs do not apply to everyone. Some businesses do not really have much exposure to research and development outgoings, aide from some basic market research. This is especially true if the organization is being built on your own skills or as a services company.
Although you could start your business on the side unofficially, as soon as you need to grow and lay some proper foundations for your business down, you will need to register it, and this will incur some incorporation costs.
The cost for incorporating your business is dependent on your own local market. For instance, the cost varies at a state level in the US. You will also need some documentation created depending on the type of company that you intend to create. With that in mind you may need to hire an expert to help you incorporate your company correctly, so you may need to factor this in as well. However, this expense is typically a one-time cost, and the fees are quite low in comparison to other things that you will need to invest in for your business.
You may also need to look at specific business licenses covering the area that you want to work in. These might be one-off costs or re-occurring but often you’ll need to get these before you begin trading so you should include them at the time of incorporation or trading if there is going to be a big delay between the two points.
Real Estate & Property Costs
When it comes to office space, warehouse space and retail space in general, the costs can range from effectively zero to a huge amount of money unless you know about healthcare logistics uk who are cost friendly. It all depends on what sort of business you will be running and what your operational needs are.
If you are looking to launch a new business, one question you need to ask yourself is whether your business model can operate without office space in the first place. Many businesses today can run just as well with its team members working from home. When starting a brand-new business, it is a good idea to trim the expenses and costs down as far as you can, and often, renting or leasing expensive office space is a good way to burn through your finances quickly, without much to show for it.
Of course, some businesses require real estate, so this cost must be factored in. Size and location are the key factors to consider when choosing a retail property for your business. If you need to save some of your money on rental think about what your needs are and what location, you could base your business in.
Product, Tooling, Machinery
If your business sells physical products, then you will need to consider the costs of the products you sell. Retailers will look to source products from resellers, distributors and manufacturers and you will need to research where you can get your products from.
One problem is that many larger manufacturers won’t supply a new business with product directly, they will push you through to a reseller or distributor and even these companies can be picky with who they deal with since often they will look for a track record in retail and a decent credit score. Many new retailers find that the ‘doors are closed’, and it can be hard to buy product in the first place.
Other businesses that aren’t looking to sell other companies products look to create their own and bring a new product to the market. For these companies there is a different problem. How will the product be developed and produced?
Ultimately this will depend on the product you are creating. Sometimes it is a good idea to create the product yourself, but for this you may need tooling and machinery. Often, a different approach when a business first starts out is to outsource all of this to a third-party manufacturer. With this method a new business can at least get quotes and ascertain what the outgoing cost is going to be at an early stage, prior to investing in expensive machinery or tools. Often this is the preferred approach for a new business and many large multi-national companies also use this approach when manufacturing products for sale.
Another aspect that is overlooked that is relevant to this type of expense is shipping. Both from manufacturing plants and to your customers. It can be expensive and often it is an aspect that can be overlooked when calculating product profitability.
Business equipment is another expense that is often overlooked. Some brand-new startups can get away with just one computer or laptop to get started but many people do not consider that if they recruit employees, each of these individuals will likely require a laptop if they are office-based staff. This then leads to the need for office furniture such as desks and office chairs. Even things like the office kettle or coffee machine can fall into this category, so again, have a long hard think as to what you will need for your business. This also includes all the software packages you will need to buy.
You will need to buy office supplies, from coffee, to stationary and all sorts of other things that employees need in their day-to-day activities. These will also need to be replenished on a regular basis, so you’ll need to consider this in your general day-to-day business expenses.
When it comes to software often there are free versions that offer similar features to the main applications that many businesses use. Perhaps you can cut costs and use these instead in the beginning. Other software packages such as with accounting software, you may need something that is specialist, so you cannot cut cost easily for all packages. Either way, anywhere you can save money on your startup costs and ongoing expenditure is something worth doing since all these business costs add up, especially in the beginning.
If you’re thinking of opening a retail outlet, then you will need to fit it out and invest in a whole range of different things to Point of Sale equipment to shelving and signage. It’s a long list of things that you’ll need so you will have to set a lot of money aside for this aspect. Warehouses, specialist outlets and manufacturing plants come with their own types of expenses, and these costs can add up quickly, so it is a good idea to have a comprehensive plan as to what it is you need in terms of startup funding. Often the expenses are a lot higher than first expected.
Business Insurance & Cover
There are a lot of different business insurance products available, like the ones from business insurance uk, to help protect yourself when you are trading as a company. You might not need them all in the beginning, but lawsuits and claims can be expensive.
Some of the different types of business insurance products that might be applicable to your business (but not always all) might include: general liability insurance, professional liability insurance, product insurance, hazard insurance and insurance to cover issues with employees.
It is worth sitting down and going through the different insurance packages that are available to work out what you need and what doesn’t apply to your business type. It is an added expense to your outgoings but could make the difference to whether your business survives or fails if something is to occur that is unexpected. You’ll need to shop around to find out what the average cost of insurance is for your small business.
Recruitment, Employees, Outsourcing
Generally, a business needs people to service it and that’s where employees come into the picture. Payroll and salary expenses normally take up a huge amount of a businesses operating cash so you will need to factor in as to what employees you need and what budget you will need for them.
When evaluating how much an employee costs, you shouldn’t forget that they usually need items to do their job. Think about the uniforms, laptops, chairs, desks and even coffee! This also needs to be factored into your budgeting.
How are you going to find employees? If you use recruitment firms then these can be great at finding the right employee for your business, but they come with their own set of fees.
Often when a business is new it can be pragmatic to consider using freelances and external companies to service some of the areas of the business which you would need to typically need to hire a person for. One example might be too hire a third-party accounting firm to handle your books or to outsource your IT services. Although these costs can be high it is a lot easier to switch or cut back on an expense from another company than lay-off internal staff.
there are a wide range of professional services and freelancers that you might need for your business anyway, regardless of employees. These include accountancy firms, book-keeping, legal firms and lawyers to handle legal fees and issues, IT, and even marketing and advertising agencies, who all bring specialist skills into your business which you would otherwise have to recruit for.
Marketing & Advertising
Marketing and advertising is another area that you might need to spend money on as a business. If nobody knows about your product or service, how are you going to sell it? You need to get the word out about your new business and the way to do this is through marketing and advertising.
How much you may need to spend on marketing is dependent on your budget and your industry, but the good news is that there are some ways to reduce your marketing costs by utilizing some of the free marketing channels, such as social media. If you manage to get a post trending on social, then your customers can come in from that. Of course, social media is not always useful for every type of business, but it is one option out of many.
Most businesses these days have a website and if you’re an online business this might be a necessity. Building a web site can be expensive, but you can find free packages available for your site with free templates. You could pay someone to create a custom template, but if you’re looking to cut costs then a free one will get you started.
Once it’s time to launch your business then you will need to think about branding and design. This is something else you’ll need to spend money on at the beginning, because you will want something that looks professional and unique.
Types of Business Cost
When it comes to your business there are a lot of different costs, and these can be broken down into different expense types. Unfortunately, in the first year of trading there are a lot of different expenses and business needs, and this can have a big influence on your cash flow.
Some of the different business operating cost types are classified as:
Fixed and ongoing costs – these are the costs for your business that you cannot change. For example, your business property rent might be considered both fixed and on-going (even if it might be subject to change at some point or if you move location). In this case this is an expense that you need to factor in to pay your bills each month.
Variable costs – are the costs that can change depending on what happens in your business. Examples of variable costs are employee expenses and business travel.
One-time costs – These one-time expenses can be the big investments that your business needs, such as tooling and machinery, or even things like office equipment, such as laptops. You may occasionally need to replace items, but typically they can be classified as one-off costs. Often this is a type of upfront business cost that is quite high in the beginning.
How to Finance Your Business
So how do you finance your business? There are many ways to get the money to launch a new business. The question is what business finance method is right for your own startup?
Often new businesses are self-funded by the entrepreneurs own personal savings. You may even hear of businesses being launched off the back of someone’s credit card. These success stories are few and far between.
If you have a business idea but lack the funds to realize it, then you could look to outside sources for money for your business.
When you open a bank account you might expect that the lender will also offer you a small business loan. Unfortunately, that is not the case for most brand-new businesses and a line of credit is not open to most. Often, they will not even give you a business credit card.
The good news is that there are other financing options such as angel investment. Angel investors are high net worth individuals who look to invest in brand new businesses and startups in return for some equity in the business.
Often angel investors can help with business startup expenses or expansion costs and offer an invaluable service to would be entrepreneurs what have good business ideas but do not have the means to launch themselves with their own finances.
If you’re looking for an angel investor to help fund your business, then the Angel Investment Network can help. Sign-up to pitch your business to investors located all over the world.