What business costs do you need to take into consideration when launching a startup? In this article, we will take a look at how much money you need to start a small business and the areas you may need to invest in.
Like all things in life, startups and small businesses cost money to launch. As well as research and development, you need to consider stock, equipment, marketing, and legal fees. Costs can quickly add up!
Join us as we look at the average cost to launch a startup, what you need to spend your money on and how you can finance your new business.
What does the average business startup cost?
Different organizations state different numbers when it comes to the cost of launching your startup. Let’s take a look at some of the suggested average figures.
- According to the US Small Business Administration, it costs $3,000 to launch a small startup, mainly it works if there are founders that can cover a major part of all expenses;
- Shopify claims that a one-person startup costs $18,000 to launch;
- The Kauffman Foundation advises that the cost is $30,000;
- In the UK, it is estimated that the typical startup costs £32,000 to launch. Unsurprisingly, London is the most expensive place in the country to launch a startup.
As you can see, the numbers vary quite a lot!
Even if you are worried that the numbers above are pretty high, remember they are not typical of all startup businesses.
For example, Julie Deane launched the Cambridge Satchel Company as a way to put her children through private school. She created the accessory business at her kitchen table with just £600, and the company is now worth £50 million.
Some of the factors that can determine the cost of a startup include:
- The type of business you are launching
- How much stock and equipment do you need to buy
- The target audience you want to reach
- How many people do you need to involve in your startup idea
- The country, town, or city you live in
Small business/startup costs – what can you expect to have to buy?
Here are some of the expenses that you need to consider when starting your business.
Bear in mind that all the startup costs may not apply to you. For example, if you are a one-person startup, you will not need to consider hiring other people, HR, or an office.
Your startup costs will vary depending on where you are and how much support you need. We would always recommend getting at least three different quotes for everything you need on your list.
Research and development
You need to conduct research to see if your startup idea is a valuable one. If you are unable to do this yourself, you may need to hire an external company to help you.
It’s always good to get legal advice before launching a business. For example, are there any licenses you need to have? Do you need to get your logo or name trademarked? Do you need to register your business? If your business is based in Italy, it can cost €2,000 just to register as a private limited company.
Getting legal costs sorted out in the initial stages of your business can mean fewer problems later on.
Marketing would be a significant startup costs
Marketing covers a wide range of things, from building and maintaining a website to content and advertising. If you can’t do this yourself (or don’t have the time to do it), you may need to hire people to do it for you.
If you sell a product, you will need inventory to sell to people.
Not only will you have to buy the stock, but you will need somewhere to store it, and you will also need to consider shipping fees.
If you don’t have space or have limited funds, drop shipping can be an alternative option to holding stock yourself.
You’re only as good as the tools you use. Depending on your startup, you may need a laptop, mobile phone, or specific computer software.
Staff (and third-party support)
Many startups have successfully launched with just one person at the helm. Even Amazon consisted of Jeff Bezos working in his garage at the very beginning!
If you need a little extra help, then you will need to hire staff. You can hire them to work permanently at your startup or recruit an agency, consultant, or freelancer to carry out tasks for you.
If you need commercial space, whether an office for your staff or a warehouse for your stock, this can be a considerable cost. As well as the space itself, you will need to consider utility bills, furniture, and general upkeep.
Insurance can help protect your business if someone gets in trouble or hurts themself because of something you or your startup has done. If you have tangible assets like stock and equipment, insurance will protect them from fire or damage.
How can you reduce your costs for startups?
If you want to launch your new business as cost-effectively as possible, there are a few ways you can do this. Here are some of our top tips.
Review your budget carefully
Keeping an eye on your budget will help you see what you are spending your money on and what expenses need to be cut. Keep a regularly updated spreadsheet and check it as often as possible.
If you are looking for a cost calculator to help you work out how much you are spending, there are lots of great ones available online, like this one from Small Business Trends.
Looking at your budget regularly will help you if you decide to go down the investment route in the future. Angel investors and venture capitalists will want to see how you have kept expenditure to a minimum.
Ask for advice
There are many other entrepreneurs out there, and the great thing is that they all want to support each other.
If you have a question about expenditure or want to see if you’re doing things correctly, do ask around. You can either pose questions on social media or attend an online or face-to-face networking event.
Think… do I really need this?
You may think that you need a bright and spacious office for your startup. However, if there are only a few of you in the business, could you work from home or hire a shared office space for a few months?
When you’re starting out, there is a lot of unnecessary spending that you can forego to reduce your expenses and help you make more profit. Think about what is essential for your business, what is nice to have, and what you just don’t need at this moment in time.
It’s best to start small. Then, as your startup grows and evolves, you can look at additional spending at a later date.
Consider digital marketing as a cost of your startup
As tempting as it may be to use a billboard or newspaper advert to showcase your new business, digital marketing is a better option as it is low-cost and brings excellent results. Social media, search engine optimization (SEO), and pay-per-click advertising are all great ways to promote your product or service.
You can either run your digital campaigns yourself, hire a marketer, or use an agency/freelancer.
Quite often spending money can help you save money
Remember that you can’t do everything yourself. Sometimes spending money can be cheaper than trying to do something on your own.
For example, let’s say that you want to create a logo for your startup. If you created it yourself, you might spend hours on something that you’re ultimately not happy with. Conversely, a graphic designer will be able to create a great logo for you in no time at all – meaning that you can focus your time on other things.
You may balk at the idea of hiring an accountant. However, an accountant will be able to suggest ways you can reduce your expenditure, meaning that you ultimately save money by bringing them on board.
Where can you find the money to cover your startup?
When you have worked out how much money you need to bring your ideas to life, you will need to find the capital to get your business off the ground. Here are some of the ways you can finance your startup.
Bootstrapping is when you fund the startup costs by yourself, through your own savings, credit cards, or money from family and friends.
Many large businesses like Facebook, Apple, and Coca-Cola started off this way, and about 65% of all new businesses are financed by bootstrapping alone.
Bank loans/Peer-to-peer loan
This is when you go to your bank or savings company to get the money you need to launch your startup.
Pretty much all banks now offer small business loans; however, the criteria can be quite strict. After all, the bank wants to know that they will get their money back.
As an alternative, you can get a peer-to-peer business loan. This is when investors offer business loans to startups that are paid back over time. Sites like Ratesetter and Funding Circle are good examples of peer-to-peer lending sites.
Angel investing and venture capital
Angel investing and venture capital is when an investor or group of investors gives you money in exchange for equity in your business. This means that the investor will have a certain amount of control over your startup
The advantage of this type of funding is that you can also get guidance and support to help your startup spend its money more efficiently. The investor may have a financial consultant or accountant that they are happy for you to use.
Depending on which country you are based in and which industry you are in, you may be able to get grants and financial support for your startup.
For example, if you are in the UK and are developing a new product or service, you may be able to get a grant from Innovate UK.
Sometimes if a grant is not available, you may be able to get a loan with very low-interest rates as an alternative.
A new alternative to the more traditional means of funding your startup, crowdfunding sites like Kickstarter, IndieGogo, and Fundable let you pitch your ideas online. In exchange for small gifts and prizes, people can invest money in your small business venture.
There are also investor-focused crowdfunding platforms available, where supporters can become shareholders in your business.
In summary: Startup costs and expenses vs return on investment
All startups, regardless of size, industry, or location, have expenses to consider. However, remember that there are many ways to get the capital you need to run your new business – whether through investment, crowdfunding, or bootstrapping it yourself.
You need to consider the return on investment for your startup. For example, if your startup will cost you €20,000 to launch, but the financial data predicts you will make €200,000 at the end of your first year, then that is a pretty solid return.
As a final thought, consider Jon Oringer, the founder of Shutterstock. Oringer started as a professional software developer and amateur photographer. He launched the business in 2003 with $10,000 to create an easier way to find and purchase generic stock photos. Nearly twenty years later, Shutterstock is now worth over $2 billion, and Oringer is now a billionaire
Need a little extra support to launch your startup? You are launched is here to help
We can help you work out how much your startup will cost to launch, where you can get money from and where you can make savings. Consider us your trusted financial source when it comes to your business’s expenses!
Contact us today and see how we can help launch your small business in the most cost-effective way.