If you’re thinking about starting a business and you’ve been searching online for advice, you’ll find a lot of articles telling you that cash flow is the single biggest issue that new businesses face. You’ll only have a limited amount of startup cash and if you burn through it too quickly before you start making any money, the business is going to go under. Often, the reason that this happens is that people go in not knowing what to expect and they get hit with all sorts of costs that they didn’t budget for. That’s why it’s important to know exactly what you’re going to have to pay for before you start your business so you’re prepared for it. These are the main costs that you’re going to have to cover in your first year of business.
When you first start out, you’ll probably be working from home on your own and you won’t need any office space just yet. But there will come a point when you can’t handle the workload on your own if you’re going to give good service to your customers so you’ll need some employees. If you want to get the best employees, you’ll need to pay a decent salary. To start with, you should only bring on one or two people on board but that’s still going to be a substantial cost. The average salary of an office assistant is £21,000 a year and you’ll have to pay even more for higher level positions like marketing or IT so be prepared.
Unless you’re going to cram your new employees into your home office, you’re going to need to rent a space. The cost of commercial properties can be pretty substantial depending on where it’s located and the size. Expect to pay somewhere between £100 and £1000 a month per employee. You can save some money by getting an office outside of the city centre but think about how easy it is for your staff to get to work every day. You don’t want to put good people off working for you because of a long commute.
Paying for the office itself is just the start, you need something for your employees to work on. That means fitting the office out with all of the furniture you need and all of the computer equipment etc. You’re going to pay about £200 per employee for furniture and then another £400-£500 each for a computer. Then you’ve got to pay for subscriptions to software on top of that so the cost can quickly add up.
This is one of the most important costs because you don’t have a business without a product to sell. It’s difficult to estimate the cost here because it all depends on the product that you’re selling. That’s why you need to do some good research and get quotes ahead of time so you know what you’re dealing with.
Now that you’ve got a team of people and a product to sell, you need to find somebody to buy it. Marketing is one of your most important expenses but a lot of new businesses try to save money by not spending as much on marketing. That’s one of the biggest mistakes that you can make. If you’re not investing in marketing, you’re never going to start bringing in any money and the business will just fizzle out when your startup cash runs out.
As long as you budget for these costs in your first year of business and leave a little on the side as a cash buffer, you should be able to survive long enough to become profitable.