Calculating finances for a start up business

Starting a business is an exciting endeavour. You’re filled with an abundance of ideas, potential opportunities, and anticipating what the future will bring. However, it also comes with a lot of stress. There’s so much to think about – insurance, premises, staff, stock, and the rest. Often you find that it is more expected than you had initially planned, as there are so many different costs to consider, it’s easy to overlook some.

That is why, in today’s blog, we’re looking into the various expenses that you must consider when starting up a business. We will be discussing how you can calculate your business’ start-up costs and look into the extensive list of expenses to consider when planning the establishment of your business. Additionally, if you need any help with limited company formation, Gorilla Accounting is here to offer our expert advice.


Defining Business Start-Up Costs

First of all, what defines a business start-up cost? They are the one-off expenses incurred with the establishment of a new business. Usually, you can split these costs into two separate categories, which help to understand them to a greater degree.

  • Investigatory Costs. When starting up a new business, you must do thorough research into your field. This research includes competitor analysis, market research, and consultancy fees. The investigatory costs cover these expenses and the investigation into existing products or services on the market similar to those you will offer and costs of deals with potential distributors and suppliers.
  • Pre-launch Costs. The costs in this category cover the expenses that occur between the time the decision has been made to launch your business officially and when the business has been established and launched. Examples of pre-launch costs include marketing (both digital and traditional), office or shop furnishings and equipment, staff training costs, damage deposits and installation charges for WiFi and telephone lines.

Although these are considered start-up costs, it’s important to note that some of the expenses listed could roll over into or after the launch of your business. This factor is dependant on how crucial they are for the establishment of the company. For example, some office furniture may not be as important right away.


Time and money in relation to a start up business


How to Calculate Business Start-Up Costs

When planning for the launch of your business, you must be thorough with your start-up cost calculations to avoid nasty surprises just before or after the launch. This process involves creating a financial forecast which predicts all expenses involved in the start-up of your business. First, write a list or create a spreadsheet of all costs – we will go into further detail about the individual costs to consider below.

Once all the expenses have been identified, be as specific as possible about the price of each one. It’s important to note that some costs will be easy to work out, such as WiFi installation and office furniture; however, you may have to make an educated estimate for some, such as the investigatory costs. Finally, add them all together when you have a complete list – this is your estimated start-up cost for your new business. We recommend having a small buffer on this amount, as it’s difficult to plan accurately, and it’s much safer to prepare to spend more.

Calculating business start-up costs helps you identify the amount of money you will need before the launch and prepare you during your search for start-up funding. It also helps estimate your profits, attracts investors, conduct a break-even analysis, and secure loans.

If you need any help understanding what this means or are looking for limited company accountants to assist you in managing your finances, please get in touch with our team today.


Research Expenses

As discussed, research expenses fall into the investigatory costs of start-up business expenses. Before launching, you must do the proper research into your business’ field, as you wouldn’t want to miss something crucial, such as a product or brand name very similar to your own.

The research expenses include creating an investigatory plan into your field, such means looking into the industry in detail and searching for a gap in the market. Additionally, the costs cover careful research into your target market, potential customers, and what is missing for those particular people. Finally, research expenses also include competitor analysis and finding which tax structure is right for your business. Although you can do this research yourself, it must be thorough, so many entrepreneurs choose to use a market research firm, which is where most of the money in this factor goes.


Man and woman looking into start up business expenses


Fixed Costs

After the research costs have been considered, it’s time to begin planning for the fixed costs. These are expenses that are guaranteed in your business and are not flexible or negotiable. As a start-up business owner, you must pay the fixes cards regardless of whether your company makes a profit. Of course, these expenses differ from business-to-business; however, we have compiled a list of the most common fixed costs for start-up businesses below.


Insurance Costs

Implementing the right insurance is necessary as the various policies protect your business, staff, premises, and yourself. Here are a few of the insurance policies recommended for a start-up business. However, it’s important to note that these can differ depending on the industry your company falls into.

  • Building Insurance. These insurance policies protect the physical building that your business will be based in. Whether this is an office space, a warehouse, a shop, or something else, they give protection against damage made to the building, including roof leaks and broken windows.
  • Contents Insurance. Whereas the previous policy protected against the building’s structure, these policies cover the contents of the building. This includes replacing or repairing items that have been damaged, destroyed, or stolen – anything from office chairs to stock.
  • Employers’ Liability Insurance. As soon as your business has launched, this insurance is a legal requirement, so it’s best to have your policy in place beforehand. Employers’ Liability Insurance covers legal fees if a current or ex-employee sues the business for illness or injury caused by the workplace.
  • Public Liability Similarly to the above, these policies cover your business if a member of the public sues your company for accidental injury on your premises or if their property has been damaged due to your business activities.
  • Product Liability Insurance. Finally, this insurance covers the cost of legal fees if someone falls ill from or becomes injured by a product you sell.

This is a condensed list covering the basics, so proper research into which insurance policies are right for your business is essential. For example, you may find that some policies are a legal requirement for your chosen industry, whereas they aren’t in other industries.


Insurance policies for start up businesses


Premises Expenses

Where you intend to house your business will depend on how much you need to spend on your premises. For example, costs will, of course, differ between the price to rent a shop versus renting a warehouse. Perhaps you plan on running your business from home? If this is possible, it’s a great way to save money; however, you must consider the likelihood of growth and the possibility of expanding your workplace environment. Premises expenses also include your utilities such as gas, water, and electricity. Bear in mind that these are just the start-up costs, and monthly rent or mortgages aren’t included.


Start-Up Assets and Stock

Although you will need to purchase stock regularly, you must have a start-up collection of supplies, particularly if you’re opening a shop. The first thing you will need to do is establish your suppliers, distributors, or manufacturers – a process included in the research expenses. Once this has been decided, you can begin looking at the price range of your stock. It isn’t easy to estimate which items will sell the most and which won’t be as popular, so you mustn’t go overboard during this process and buy too much at once.


Staff Costs

Staffing and employment costs are considered one of the highest expenses for a start-up business, so you must plan carefully to ensure no mistakes are made. These costs will differ from business-to-business, so there are various factors to consider when choosing the right option for yours. If you decide to use a recruitment agency to find staff, be aware that although this makes the hiring process easier for yourself, you won’t just be paying your staff’s wages, but a fee to the agency as well. Find out which method is best for your business – would full-time employees work best? Or would your company benefit more from freelance workers?

Additionally, consider staff training. What compulsory training is required of your staff, and what training would be helpful but not considered a necessity? For example, if your business involves working at height, there will be much more mandatory training than a shop assistant.


Recruitment fees for start up businesses


Marketing Expenses

As a start-up business, marketing is one of the most significant expenses to consider. Your business is brand-new, so getting your name out there and having it recognisable to your target market is a must. There are two types of marketing to consider:

  • Digital Marketing. This is a popular choice amongst start-up businesses, with us heading towards a more digital world every day. Potential customers will use search engines to find your products or services, so your business must be at the top of the list. By utilising paid services such as PPC, SEO, and Content Marketing, you will find that your business receives much more traffic to its site, resulting in increased sales or interest in your services.
  • Traditional Marketing. Obtaining business cards is a great idea, especially if you plan to attend networking events. Additionally, signs and banners also fall into this category – which is a great idea for attracting a more local clientele.


Variable Start-Up Business Costs

In addition to the fixed costs of a start-up business, you must also consider the variable expenses. These include, but are not limited to:

  • Products and Deliveries. The price of an individual product can fluctuate, whether that be office furniture, stock, or safety equipment. Depending on the amount of product you are purchasing at once, it can also change as some suppliers may offer discounts if you are buying in bulk. Additionally, delivery charges can differ depending on the weight of parcels, the distance they need to travel, and the time you need them (e.g. next day delivery or specific day delivery).
  • Staff Wages. Of course, if your staff have a monthly salary, this counts as a fixed cost. However, if you have freelance employees or employees who work billable hours, this is considered a variable cost.

If you’re going solo on your start-up business and need some assistance with your finances, Gorilla Accounting is here for you. We offer incredible services for the self-employed, so get in touch with our sole trader accountants today.


Man and woman discussing the expenses of a start up business


Can You Start an Online Business with No Money?

The costs listed above may seem daunting, and if you feel as though you can’t afford everything needed to start a business, there is a possibility that you can do it all for free. It sounds too good to be true, right? However, if you’re wondering how to start an online business with no money, there are a couple of options to choose from that should set you on the right track.

  • This business idea cuts out all inventory and stock expenses, as it essentially involves purchasing an item to sell only once a customer has purchased it from your online shop. Of course, marketing is a considerable part of drop shipping, but if you have experience in web design or SEO, this is a business idea that may benefit you.
  • If you have a particular interest or passion, why not utilise it as a base for a new business? All you need is a website to host the blog, which you can obtain for free. From there, you can get endorsements and advertisers.
  • Online Video. This is similar to blogging, just in a video format. You can upload videos for free on YouTube and get advertisers and endorsements from companies interested in your content.

Of course, you can set up your own business online with no money doing just about anything – these are just some of the most popular examples.


How Can Gorilla Accounting Assist You in Setting Up Your Business?

Gorilla Accounting is here to support you every step of the way with your start-up business. We understand that there’s a lot to think about when establishing your business, which is why we offer contractors and sole traders account management services to put your mind at ease when it comes to your business’ finances.

Our contractor accountants and aforementioned sole trader accountants, and limited company accountants are here to give you a helping hand. Additionally, consider taking advantage of our FreeTrader accounting software – a great bookkeeping software loved and trusted by thousands of freelancers and contractors. Finally, please don’t hesitate to contact our team to find out what more we can do for you during the exciting journey of starting up your business.