Costs For Starting a Business in the UK
In the past 3 years, the UK has seen a massive number of new businesses starting up. While many of these are smaller businesses and online, the areas they are in are extremely diverse. In short, it has been a good time to start a business, despite what many people think about the current economic climate. More recently, the looming menace of inflation has cooled many people’s spending habits, but efforts are being made by Downing Street to curtail inflation. And with fuel prices also beginning to slowly come down, consumer confidence in the UK will likely return soon also.
If you have a great idea or plan to start a business and are ready to take the plunge, inevitably your first questions will likely centre around startup costs. In this blog, we will examine the current cost estimates that are out there to start a business and how they might play into your decision to take the plunge.
First Things First
The amount of initial startup funds a business needs depends on several factors but always these two:
- The industry type and,
- The location of the business (a physical location will cost much more than setting up an e-commerce site, for example).
The average business, according to figures from the Company Warehouse needs around £5,000, simply to launch. Many businesses will then go on to spend close to £23,000 on average in their first year. So, while the initial costs may not necessarily be daunting to some people, the added-on costs throughout the year are. And because of this, only 42% of SME’s survive beyond 5 years. Therefore, budgets need to be strict and tight from the outset!
Why are startup calculations so vital?
Think of having accurate startup cost estimates like dealing with a snowball as opposed to an avalanche. Knowing your startup costs will help you:
- Know whether you can even afford to launch your business overall,
- Explore various revenue opportunities if you do not have enough to self-fund your business entirely,
- Demonstrate to any investors that you are financially responsible,
- Determine the long-term financial viability of your business idea,
- Know if you can afford staff to help you launch your business smoothly and,
- Calculate a budget for all parts of your business, including advertising, supply and insurance.
Brick and Mortar Store v Online Store
Setting up a traditional storefront may always have been someone’s dream, but today the allure of online shopping is seeing this tradition become quite antiquated. The movement toward online shopping was well and truly cemented prior to 2020 and only grew stronger with the onset of the COVID-19 pandemic.
Setting up a physical location means paying for all the utilities, insurance, staff wages and benefits, displays, upkeep and cleaning etc. It’s a great deal to financially commit to. Whereas an online store simply requires connectivity, a website and some e-commerce solutions to essentially automate the shopping experience for the owner and online customers alike. Of course, the physical human interaction isn’t there, but it is easy to see why a move to online shopping has been an easy one for many businesses.
Start with Stock
While this may appear to be an obvious statement, it cannot be stressed enough that a lack of inventory from the get-go means your business may never even begin. Before you even register your business, you should have stock! Then, examine your business model and consider whether you can make it a time-sensitive model. This means opening your store for an “exclusive” amount of time to create scarcity and desirability of your products. What it also does is give you an idea of what stock levels you will need to maintain in the future.
Consider your website costs
This cost applies to all businesses these days, including traditional brick-and-mortar establishments. Your website needs to be created, monitored, secured and optimised, which means opening your wallet or purse.
Squarespace websites cost start at around £18 per month, but to start your website you’re likely looking at close to £1,000 or more. The popular option lately has been to use e-commerce website builders like Shopify, which charge around £20 per month.
The beauty of e-commerce website builders like Shopify is that you don’t have to purchase a domain name or worry about several other online logistical headaches, like payment options. But it limits exactly how big you can grow and how creative you can be with your site.
Another startup expense to consider, as a flow from website costs, is what you’ll need to spend on marketing and branding. Money will need to be spent on:
- Web design (as mentioned),
- Graphic design (logos, branding guides etc.),
- Content creation (ideally content that is SEO optimised),
- Social media posts and ads,
- Signage for brick-and-mortar establishments and,
- Any other marketing materials like posters, brochures etc.
Marketing is also an area you don’t want to necessarily be cheap with either. An effective digital marketing strategy from the outset may cost a pretty penny to begin with. However, the amount of revenue that can be generated long term will likely turn out to be money well spent. Marketing decisions can prove to be extremely consequential, so it is best to not take them lightly, nor hire the wrong person (or a firm) for them.
This may depend on the industry your business will be in, but this may need to be considered as an initial cost also. Typically, registering as a sole trader in the UK is free. But registering as a limited company may cost up to £100. The same goes for partnership-styled businesses. If you need an address to register your business, here at Clyde Offices we provide a Glasgow registered office for your business.
So, there you have it. While much of what we have outlined for you today is quite nebulous, it’s important to know that starting your own company, and starting it successfully will require quite an amount of money. As mentioned, conservatively these estimates start at around £5,000 but will likely balloon well beyond that, and quickly. To avoid the costs of starting a business eating up your dreams, it’s important to be prepared, know what you can afford and have a sound business plan, at a minimum.