Before you start your business there are many costs you need to be aware of and account for in your business plan to make sure you don't get any nasty surprises later on whether you are starting a home based internet business or a bricks and mortar retail outlet.
Of course you can consult an accountant, but you may not need to. Have a look through this article and write down the cost of everything you think you'll going to incur into a spreadsheet before you start up your business.
Types of Startup Costs
Different types of businesses will have different costs when they are starting up. We have therefore attempted to think of all the different types of start up expenses you may encounter whether they be running costs of the operation or once off capital costs for purchasing assets.
When preparing your first business plan you'll probably have to estimate most costs, which is fine, so long as you are estimating based on facts and not on what you believe they should be. As your business grows, you'll hopefully be able to make cost savings as you can build in economies of scale into your operations.
There are two basic types of cost you'll incur - fixed costs and variable costs and these are used to estimate and plan your break-even point analysis.
Types of Fixed Costs
Fixed costs are those costs you incur which do not increase (or decrease) from you selling one more unit of your product or service. (The costs directly associated with you doing this are called marginal or variable costs).
We have split the fixed cost of your business startup into the main categories.
- Professional fees - These may include the cost of hiring an accountant, solicitor, lawyer, or other expert professional to deal with the legal aspects of starting a business such as company formation, copyright protection, drafting partnership agreements or other fees you may need to pay to the government for certificates and inspections for health and safety or food hygiene.
- Insurance - this can include public liability insurance, car insurance, van insurance, contents and building insurance.
- Premises costs - included refit of a shop, building and construction cost of premises, rent, rates and connection of utilities including electricity, telephone, gas and water rates.
- Staffing and employment - Any advertising and recruitment fees for new staff, including training and training courses.
- Stock - purchase and storage of initial stock and warehousing costs.
- Sales and marketing - initial launch and promotion of your products and services including e-commerce and website development.
- Finance - any forms of loans or finance, including interest payments and arrangement fees
Variable costs or direct costs are those that increase if you sell one more unit of your product or service. Some of the above costs under fixed costs may actually be variable, but more often than not, your variable costs will fall under direct product costs such as:
- The actual cost of product - this may be added to your stock, but when expensed it's a variable cost.
- Shipping of product - the cost of shipping, postage and any shipping insurance.
- Packaging - the packaging of shipping the product.
- Remuneration and commissions paid to your sales force.
- Direct wages paid to workers who get paid by the item produced.
Project Management of your new Start up Business
Think about the time it's going to take you to develop your ideas into the first day you startup your business because whatever you need to undertake will take much longer that you imagine. For example, if you need premises the time taken to have solicitors to go through the lease agreement to you getting the keys and then having to have the shop re-fitted can take months.
If you have to recruit new staff you don't want to have them employed by you and not doing anything whilst you are paying the salaries.
So it's a wise move to produce a project plan of all the items you need to get ready and plot them against a timeline, the cost of each activity and the person responsible for that activity on the overall project. You can then monitor progress against the actual events as you progress.
Perhaps also think about what skills and professional you may need to hire to help you with your small business because you alone will not be able to do everything.
Like most people, you'll be keen to get your business off to a great start as soon as possible and may tend to rush things to get towards your goals without keeping an eye on the best deals or to ensure that working capital and cash flow are healthy. Here are some tips to keep the cash flowing in the early days:
- Lease or rent rather than buy - this keeps the initial payments low and like vehicles you can give them back at the end of the lease and not have to worry about depreciation and sometimes maintenance during the contract.
- Use contract workers - so you don't need to worry about tax, NI and pensions.
- Use price comparison websites to check out the best deal for utilities - there are business price comparison sites these days also.
- Use pay as you go rather than contracts so you're not tied into a long period you can't get out of.
Start up Help
Getting start up help is easy as there are so many free resources around. If you are the UK then your first port of call might be your local BusinessLink who may assign you an advisor. These are generally people who have run businesses before, but check out their credentials as many are not. Even if you don't get an advisor they may have brochures and guides that can help you.
Whatever business you are thinking of starting, the industry will generally have a professional body managing the interests of their members offering help and advice to you. Additionally, read the rest of this website to help with your business start up costs!