What Are the Common Costs Associated with Starting a New Business?
Arguably, the most daunting part of starting a new business is determining just how much everything is going to cost. One of the most common reasons for the failure of startups is the simple fact that they’ve run out of money in their first year. This is why having a comprehensive business plan in place is important to ensure that you have sufficient finances to succeed in your venture.
An educated idea about your potential business costs is an absolutely vital part of your overall plan. The best way to do this is to look at each individual component of your business and work out how much you’re expecting it to cost. More often than not, you’ll be able to calculate starting costs by doing your research and making a number of educated guesses from there. Luckily for you, we’ve already done a lot of the research for you.
As a new company, you’ll want to figure out exactly where you stand within your chosen industry. This is why it’s always a good idea to invest in market research so that you can analyze your competitors and compare potential costs such as labor supply, transportation, premises costs, consultancy fees, and suppliers. Although some of these might not become an expense until your business is up and running, it’s still important to know roughly how much you’ll be expected to pay.
Equipment and supplies
The equipment and supplies you require for your business will depend on what it is that you’re doing. If you’re starting a retail business, for example, it’s likely that stock will be one of your largest expenses. In this case, during the first few months of business, you should take advantage of any credit that is offered to you by suppliers because it will allow you to get used to your regular cash flow.
If your business is office-based, it’s likely that you’ll have to spend money on equipment such as computers, data storage and backup, internet connection, stationery, and telephones. It’s important to be realistic about your initial costs and give your business a chance to ‘test the water’ before you experience too much financial pressure.
Insurance and relevant permits
A lot of insurance policies are legally required, but every business will have different priorities. Some of the most typical policies include:
- Employer’s liability insurance
If your business employs anyone, you are legally required to have this insurance in place, and you can be fined up to £2,500 ($3,071) for every single day that you don’t have this type of protection in place. This insurance will protect you from any compensation claims that may be made by your employees.
- Public liability insurance
If your business works with members of the general public, this type of insurance will cover you for any claims made by someone who has experienced damage or who have been injured because of your business. Some companies may wish to opt for product liability insurance which will protect you if a product you sell has caused damaged or injured a member of the public. It’s always best to compare public liability insurance so that you know you’re getting the best deal.
- Professional indemnity insurance
This will protect you if a member of the public makes a compensation claim against you because they believe you have made a mistake at work, for example, breaching confidentiality or copyright infringement.
- Building and contents insurance
This insurance will protect the building that you own and the contents of your workplace. This is not a legal requirement, but it’s a good idea to have it in place so that if anything were to happen, you wouldn’t have to fork out the cost of new, potentially costly equipment.
Whether you’re buying or leasing property to establish your business premises, you will need to consider monthly outgoings such as rent, service charges, and utility bills. If the premises that you have chosen do not suit your business requirements, you might also need to consider the cost of any refurbishment that’s needed to get it up to scratch.
Staffing is usually one of the biggest, if not the biggest, cost of a business regardless of whether it’s a startup or not. In the early stages, you may want to consider freelance contractors or part-time staff until you can guarantee that your business is capable enough to handle full-time wages. If you’re sourcing new talent through recruitment agencies or advertising job vacancies, these are further costs that you’ll need to consider.
A new business venture will often require you to travel to seek out clients or to attend networking groups. In that case, you will need to factor transportation costs into your plan. If you’re using a personal car for business purposes, you will be required to take out business car insurance if this is something that’s not included in your current vehicle insurance plan.
For a new business, marketing your product or service is vital to achieving success, but it can be another big expense. The type of marketing that you do can vary, and some can end up costing you a lot more than others. For example, methods like direct mail might not be the best idea for a growing business. Instead, focus on online marketing techniques such as social media and SEO that can generate plenty of leads to get people talking about your product or service. This is an important expense to consider as businesses that do not invest enough money or time into marketing can often find themselves struggling to keep up with their finances and ultimately end up bankrupt.
We hope you found the promoted post as entertaining and informative as we did!