It’s one thing to have an idea. It’s quite another thing to develop it into a viable product or service and get it out into the market. For that, you need a small business plan and an understanding of how much it costs to start a business.

Most people confuse this with business models. A business model, as part of a small business plan, would tell you how much revenue you can expect from various sources and the operational costs you would have to incur to keep it coming. The cost of starting a small business is something else and entrepreneurs need to clearly understand that.

How much does it cost to set up a business?

Understanding how much it would cost to set up a business is a crucial process in launching your startup. According to one study, it would cost around £5,000 to set up a business. An average startup in the UK would also spend around £22,756 in its first year of operations.

The costs would depend on the following factors:

The industry that you’re getting into
The location from where you would operate
Whether you need an office
The number of employees you would need
Whether you need a physical store
Whether you’re creating physical or digital products

Why do you need to calculate business startup costs?

Budgeting is the key to financial health. This is more important when you’re risking job security by starting a business. When you make a small business plan and calculate your startup costs, you would be able to:

Know whether you can afford to launch your startup
Understand if you have the necessary funds or if you need to seek external funding
Show investors that you’re aware of your business’s financial needs
Analyse the financial viability of your startup
Know if you can afford to keep a team
Understand the money you would need for equipment, utility payments, marketing etc.

What are startup expenses?

These are the costs you’ll have to incur when you start a business. You would have to bear these expenses to develop your product or service, get your business up and running and then get it to your target audience. Also referred to as sunk costs, you won’t be able to get them back no matter how well you succeed.

These include registration costs, the fees that you would have to pay an accountant, solicitor and any other professional for their advice, the money you spend to recruit your employees and the expenses you’ll incur in branding, marketing and promotional activities.

Business costs: A guide for small businesses

These are the various business costs you’ll have to incur when setting up your business:

Professional advice: You would need the services of an accountant and solicitor who would guide you on the financial and legal aspects of setting up your business. An accountant, for example, would guide you on what to look for in a bank account.

Company incorporation: To save time, you might have to use the services of a professional for company incorporation with the Companies House.

Business premises: If you need a physical office or store, you would have to pay for everything from lease to furniture to equipment to utility bills.

Stock costs: If you’re a retailer or reseller, you would have to pay for the stock, usually on 30 days’ credit.

Marketing: You’ll have to spend on marketing to create brand awareness. These could be traditional, digital, on-ground or any other kind of promotional activities.

Insurance: Considering what’s at risk, you would need insurance from day one. An accountant or solicitor will guide you on the kind of insurance that you would have to take.

Travel: Unless you have an entirely remote operation, you might need to travel to meet clients, vendors, or potential customers.

In short

Your small business plan will only be complete if it shows the financial needs, challenges and opportunities that your business would face. Understanding what it would take to set up your business would go a long way in making it financially healthy.