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Costs to consider when starting a business

Starting a new business is an exciting time for any budding entrepreneur. However, careful planning and detailed understanding of set-up requirements are fundamental in making sure you create your new enterprise on the right foundations.

It is essential to know the financials behind your company. When crafting your business model, you will need to plot out the regular expenses you will incur when running your operations, as well as forecasting things like revenue, profit and sales over time.

However, you will also need to consider the costs required to launch your business, such as those associated with premises, equipment, insurance and stock.

We have listed the key costs you need to account for when starting your enterprise, as well as the support you can utilise to make each more affordable, to help you plan for your start-up.

  • Premise costs

  • Equipment costs

  • Cost of sales / supplies / consumables

  • Staff wages

  • Insurance

  • Fees around operations and processes

Premise costs

One of the first things to consider when launching your own firm is where you will operate. For most, this will mean securing an office space, store or other physical location that you and your staff will work and sell from. To be able to obtain such premises, you’ll need to rent or purchase it.

This is where a business mortgage comes into effect when you are purchasing premises. With a business mortgage, you can obtain the premises you want for your operations in exchange for monthly repayments. In most cases, you will need to require a deposit of at least 35%, with the mortgage covering the remaining amount.

When searching for a mortgage, it is vital to shop around as different providers can give unique offers tailored to your financial standing and the property you wish to buy. You will also want to compare interest rates, terms and other fees associated with any mortgage before you commit to make sure you are getting the best deal.

Once you have chosen your mortgage, it’s crucial to account for this as part of your financial plan and regular outgoing payments to ensure you meet the repayments on an ongoing basis.


Equipment costs

Once you have locked down the location you will be working from, you may need to obtain the equipment you need to begin operations. Depending on the type of enterprise you are running, this could include computers, machinery, tools, office furniture, kitchen facilities and so on. Being able to purchase these assets means having reasonable funds to invest.

An alternative to buying equipment outright is utilising leasing or hire purchase. With both options, you are able to secure the assets you want without having to pay the full price upfront, instead paying regular instalments to the lender covering the equipment. With hire purchase, you will own the asset at the end of the borrowing period (assuming you have cleared the balance, which may require a balloon payment at the end of the term). With leasing, you have the option to own the assets at the end of the lease period by paying a small fee or can pay an annual peppercorn rent.

By utilising such loans, you will make the cost of buying high-value assets more affordable, while guaranteeing almost instant access to the equipment you need to start your operations.


Cost of sales / supplies / consumables

Supplies are an integral part of your company’s operations. However, funding regular supply deliveries can be a recurring drain on your finances if you do not have working capital in place. Fortunately, there are many sources of support that can be applied to your supplies.

The first of these is stock finance. With stock finance, you release funds against the supplies you have sat in your warehouse, with a lender using this stock as collateral for the loan they offer you. As a result, you are able to improve cash flow within your operations to alleviate any financial strain while still maintaining access to the supplies you need to boost productivity.

An alternative option is trade finance. Trade finance is incredibly popular, with over 80% of world trade relying on it. With this option, a lender funds the supplies you need to fulfil any existing UK orders you have, providing that the supplies are imported from overseas sources. You can then get the supplies you need to meet demand while lengthening your payment terms with the lender.

Finally, there is supply chain finance. This finance enables businesses to extend their payment terms to their suppliers, while still allowing both their SME and larger providers to get paid ahead of time. As a result, all parties benefit from increased working capital, and you can ease the pressure of immediate payment.

By utilising any of the finance options above, you will be able to access all the stock you need to begin fulfilling sales from customers in a way that alleviates any financial strain.


Staff wages

Another recurring payment that most companies will need to deal with is staff wages. It is essential to meet these every month to keep your workers satisfied. Being able to afford your employee’s salaries regularly, much like being able to meet your other expenditure, means maintaining good cashflow across your enterprise.

Cashflow management practices can help you to do this, such as the likes of trade and stock finance outlined above. Other potential solutions include invoice finance , where a lender gives you up to 90% of the money owed to you via your unpaid invoices. This is particularly beneficial if you experience issues in getting payment from your clients.

Credit management can also help to keep cash flowing smoothly through your operations, by putting practices in place that encourage your customers to meet payment within a set timeframe as well as creating deterrents for those who regularly miss payments. This will allow you to craft strict guidelines for customers to follow, reducing the number of missed payments and overdue invoices. This will then prevent cashflow blockages elsewhere in your business.


Insurance

Another essential cost to consider for your business is insurance. Having insurance is key to protecting yourself and your company should a worst-case scenario happen, which could potentially leave you out of pocket. There are many different types of insurance you may wish to cover yourself with, including buildings insurance, insurance for your assets/equipment, car insurance for any company vehicles, employers, public and directors and officers liability insurance. You may also wish to take out personal guarantee insurance if using a personally guarantee to support a loan to fund your operations.

Spend time researching the varied insurance options and decide what forms of cover you want to take out. This will largely depend on the different aspects of your enterprise and how well covered you want to be. Be sure to compare various insurers and the cover they offer for their price, so you find the best option for your business.

Again, you should make sure any insurance fees are accounted for in your financial plan.


Fees around operations and processes

When you are launching an enterprise, you will need to fund the processes required to get your business running. This could include sales, admin, marketing, production and any other logistical operations need for your business to operate.

Cashflow management, as previously discussed, will help you to fund these on a daily basis, so that you can keep productivity up across your business and pay for any required expenses for each area.

However, when you are first setting up your operations, you will likely need sizeable investment to purchase all the materials you need and establish them correctly. In this event, a business loan could help. Business loans may offer substantial funding, which can be used to cover many aspects of your company requires ahead of launch. Remember that any loan you take out will require regular repayments on your behalf, so make sure you will be able to afford these under your financial projections.

Many different companies offer business loans, including commercial and alternative lenders. Some of these may even offer specific start-up loans. When researching loans, compare the terms, interest rates, fees and any added benefits associated with each to identify which will be most suitable for your needs. You will also need to enter an application for most loans, detailing your business model and financial forecasts, so make sure you are able to provide this efficiently.


Get advice

By knowing all the costs involved with launching a company and understanding the financial solutions you can utilise to make them more affordable, you will be prepared for the expenses required to turn your business idea into a reality. You will also start on steady footing, which in turn may make future financial challenges easier to overcome.

If you need advice on how to fund the set-up of your enterprise, we are here to help. Our team of advisors have experience across a range of business types, having worked with companies at every stage of their growth journey. As a result, we can guide your start-up efforts and help you find the right funding solutions to make it a success.

Get in touch today to find out more.

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