9 April 2021|Latest Posts, Launching a business, Money
By Liza Haskell, Chief Administrative Officer at Tide. Let’s get one stark fact out of the way quickly: most start-ups fail. After 5 years, only 42% of SMEs are still standing. In business, the pitfalls are deep and frequent. The good news is that, with a little research and planning, you can spot many of these pitfalls before you fall into them.
At Tide, we help all kinds of businesses to get started and grow with confidence. A common challenge for start-ups is that costs exceed expectations. Sometimes this is unavoidable; business, rather like life, will always spring surprises. But some of these costs are predictable and should be included in your start-up business plan.
We can’t possibly tell you how much money your start-up will cost. For every company like Cards Against Humanity ($15,700 in Kickstarter funding) there are dozens of back-bedroom enterprises started with pennies. On the flip side, there are wild examples like Quibi, the unsuccessful streaming service that sucked up $1.75B in funding before imploding.
You can start cheaply, and many successful companies do just that. A bigger start-up budget typically means you can accelerate some of the initial phases, such as product development, recruitment, and branding – or scale up things like marketing, growth, and partnerships.
Let’s explore the different categories of costs that you may need to budget for in your first year of business. Wherever possible, we’ll include ballpark costs for each item. Costs are so wildly variable (depending on location, business idea, aspirations etc etc) that you will likely need to conduct additional research to get accurate figures. When appropriate, we’ll also include suggestions for ways to bootstrap your venture.
Want to check the validity of your idea? Or quantify the size of your market? If you want help from a professional market research agency, or help creating and delivering a survey, expect to pay at least a few hundred pounds for the most basic research.
Low-cost options include:
· Build your own surveys (Typeform, SurveyMonkey etc)
· Ask everyone you know
· Examine keyword search volumes and Google Trends data
· Analyse your competitors
If you’re lucky, you can get started with a laptop. But you may need to invest in IT equipment, vehicles, machinery, and tools. This may necessitate funding so you can spread the cost. Make sure you include the costs of servicing and repairs, and also plan for the eventual replacement of major items like vehicles and machines.
One useful way to consider every eventuality is to make a list of all the processes your business will complete each week. What equipment is needed to facilitate these tasks?
You may need to pay fees to incorporate your business. There may be other registration fees associated with doing business, particularly if you operate in a regulated industry or profession.
UK business registration costs:
· Sole trader: £0
· Limited company: £12-£100 depending on the method. You can also register your business with Tide and we’ll cover the fee.
· Limited partnership: £20-£100
· Limited liability partnership: £10-£100 depending on the method.
Do you need a warehouse to contain your plant, a plush office to woo your clients, or can you do it all from home?
Even a cheap office in an out-of-town coworking space will cost hundreds of pounds each month. And the cost of real estate shoots upwards once you head into prime locations and city centres.
Given the immense variables in terms of location, size and intended use, you should research the kind of space you need in the areas you desire. This is the only effective way to include accurate figures in your budget.
Make sure you include ancillary costs like energy, water, broadband, cleaning, security, and maintenance.
How much stock do you need to hold? Getting the balance right is essential if you want to remain profitable. You may be able to start small and test the market’s appetite for your products. But you may also need to meet minimum order quantities from your suppliers.
Start by defining the products or offering that you need to launch, and then estimate how many of each item you need. Again, you need enough to meet demand, but you also want to balance the risk in case demand is weak.
Plenty of businesses start without a website, choosing to rely on social platforms like Instagram and Facebook to find customers, but it makes sense to build your own base early on, just in case markets shift or your preferred platform changes their policies or makes business difficult.
There are plenty of DIY website platforms available, all of which allow you to create a competent website for a few pounds (WordPress, Squarespace, Shopify, WooCommerce).
If your brand identity is crucial to your success, you will likely need the help of a web designer and developer to help you create a bespoke website that matches your identity and meets your needs. Custom sites cost anything from a few hundred pounds to several thousands.
How will you take your business to market? Will you have a high street shopfront to attract customers, or will you need to run ad campaigns or digital marketing to find your audience?
The wonder of the web is that you can find many customers online, with little or no expenditure. For example, blogging, posting on social media, and search engine optimisation (SEO) are all ideal techniques for building your brand online, and they are all things you can do yourself.
As you grow, you may prefer to engage an agency to manage some or all of this activity on your behalf.
Your brand is your identity (not just your logo). It influences how people perceive you, how they rate you, and whether they trust you.
For this reason, it makes sense to invest in external support to define your brand and create your visual identity. Aim to get it right from the start, otherwise you will spend a great deal more in developing a new identity and repeating the roll-out process.
Research by Canny Creative suggests that you will likely need at least £500 for a basic branding project with a small agency or a freelancer.
How much of your business activity will be online? Will you need to buy paper or pens?
If your business plan includes premises, then you may need to spend more to fill printers with ink and to furnish your team with notebooks. For virtual teams and online businesses, you could find that your stationery budget is the smallest line on your spreadsheet.
Accountancy, legal, IT, and strategy are just some of the areas where you may benefit from external support. Having professionals cover some of these areas can help you focus on building the business and provide comfort that you are protected from risks.
Always turn to your friends, family, and professional network for recommendations, because your options are likely to be vast and difficult to judge. While professional support is sometimes essential, it is also often avoidable – at least until you’re established enough to afford to pay the experts.
The risks of doing business can be immense – unless you have insurance. Insurance can protect you from a wide variety of accidents and unexpected events. Your requirements depend entirely on your business activities (i.e. you don’t need employer’s liability insurance if you don’t have employees).
Professional indemnity protects you from claims made by unhappy clients and customers.
Public liability insurance protects you against claims from members of the public who have been injured or affected due to carelessness.
Employer’s liability insurance protects you in case your employee is harmed or injured at work.
Building and contents insurance protects your stock and materials in case of breakages, fire, theft, or a natural disaster.
Vehicle insurance covers the vehicles you use for business.
How soon will you need to recruit? Will your business be solely owner-operated for perpetuity? Or do you plan to quickly scale up operations?
In addition to salary costs, you will need to budget for recruitment costs. Advertising alone can cost hundreds of pounds, and recruitment agencies typically charge a percentage of the candidate’s annual salary.
You may also need external support with HR and payroll management.
Software and licences
With the current trend for software on subscription, you can easily find that software licenses quickly accumulate and become one of your largest monthly outgoings – particularly if you’re paying to give your team access to premium features.
As well as operational and marketing software, you may need to budget for things like data backups and digital security.
Build your start-up budget
As you’ve seen, it’s impossible to give estimates for many start-up expenses, because the variables are just too broad.
The purpose of this list is to help you uncover all the potential costs that might crop up in your first year of business. The key is to build your own budget based on your specific needs.
There are a handful of effective ways to find accurate cost estimates:
· Search online. Plenty of sellers openly disclose their fees and charges. You may also want to check industry reports for a more general understanding of pricing.
· Ask other professionals. Friends and colleagues likely have working experience of similar costs.
· Contact vendors directly. If you’re in the market to buy, businesses will happily provide quotes.
Once you have your figures, add at least 20% to your estimates to account for errors and unexpected items. It’s far better to have more money than you need, as opposed to running short of cash.
Remember that running a business is a marathon, not a sprint. As well as planning for the launch phase, you need to plan for the first year, with half an eye on the second.
Check that your budget accommodates unexpected surprises, and also allow some buffer in case performance is underwhelming. Many of the most successful entrepreneurs take time to find their stride. Make sure your budget gives you space to breathe and grow.
Liza Haskell, Chief Administrative Officer at Tide