If you’re thinking about setting up your own business, you’re probably wondering how much it will cost. You’ve probably heard a lot about the different costs involved, and it can be daunting. Most people haven’t set up a business before and so working out the figure can be challenging.
The good news is that thousands of people start their own limited companies every year. In fact, 810,316 companies started last year alone. Plus, most businesses start on a tight budget and rely on funding grants, so you can do it. But before you start looking for investment and grants to apply for, you need to know how much money you need.
So how much does it cost to start your own business? To help you calculate the start-up costs for your business, we’ve put together this handy guide. It’ll run you through all the usual expenses so you can calculate the cost of setting up a limited company.
We would love to give you an exact figure, but it’s almost impossible as all businesses are unique. But this guide will provide you with an overview of what you should include in your budget. Hopefully, we’ll surprise you with how little start-up capital you need.
The Importance of Budgeting for Your New Business
Every year, thousands of businesses form in the UK. Unfortunately, about 60% of businesses that start each year will fail in the first three years. These closures can be for many reasons, but nearly 30% of them are due to bodging the budget.
Excitement is often the reason that businesses fail to budget – the eagerness to start trading means that they miss crucial steps. Rather than plan and build the business, directors jump into it. This causes companies to run out of money by buying too much stock or the wrong stock altogether. It’s one of the most common reasons that small businesses fail.
If you’re planning to start your own business, it’s vital you budget from day one. Before you do anything else, you need to work out your finances. Doing this means you can calculate your start-up and running costs and work out what you can and can’t afford.
The Cost of Starting a Limited Company
Before we jump into the costs of starting a business, you need to be aware that the costs below are general. Every company will have its own unique set of costs, and you will have yours. We have done our best to cover the essential start-up costs for all new businesses.
Registering With Companies House
If you choose to start a limited company in the UK, you must register with Companies House. This is one of the most straightforward and smallest start-up costs. Companies House have a range of registration services available with the following fees:
- Online registration — £12
- Postal registration — £40
- Same-day online registration — £30.
Before you can register your limited company, you will need to choose a company name. Your company name cannot be the same as an existing company or offensive. After your name, you’ll need to select a company director and shareholders. You’ll also need to have an official UK office address.
While the fee for Companies House is small, the process can get confusing. You need to create a memorandum and articles of association. These documents show how your company will run. Several common mistakes mean Companies House reject applications. This is why many companies choose to use a formations agent.
While formation agent fees are slightly higher, they ensure a successful registration. Not only that, but they take the stress out of the process.
Professional Fees and Licenses
Depending on the type of business you start, you may need to apply for licenses and pay professional fees. Many companies need specific licenses before they can begin trading. The government issues licenses; you can check which you need on their license finder.
Common business types that need licenses include:
- Any business that sells alcohol
- Construction companies
- Health and beauty businesses (hair salons, nail parlours)
- Events and hospitality
- Animal care and pet sales.
The application fees for each license varies. If you need to apply for licenses before you can start trading, you’ll need to include this cost in your budget.
You will also need to budget for any professional fees. These can include the cost of hiring:
- Solicitors
- Accountants
- Companies formation agent
- Other expert professional help.
Calculating the start-up costs of professional fees can be tricky. Often, these businesses will have hourly rates. Research a range of options to suit different budgets.
Business Premises and Offices
If you plan on leasing commercial property, you’ll need to factor it into your budget. Before you start looking at properties, you should consider your business’s needs. You’ll need to work out how much space and what facilities you need.
Once you have an idea of your requirements, you can start to look at properties to get an idea of the cost. You’ll also need to factor utilities like gas, electricity, water and internet into your budget. Some properties have service charges — find these out before making any decisions.
But the costs of commercial properties don’t end with lease and bill payments. Often you’ll need to make changes to the space to suit your needs. You’ll need to consider the cost of any changes before signing on the dotted line. If your business is office-based, you’ll also need to work out the cost of:
- Computers and laptops
- Desks and chairs
- Stationery
- Signage
- Phones.
Many new businesses choose flexible spaces for their first office. They usually need fewer changes, include utilities and have more flexible contracts. Another alternative is to use a virtual office. If you plan on running your business from home, you can use a virtual office address. You can use this address for company registration and keep your home address private.
Business Insurance
Many new businesses choose not to invest in business insurance straight away. It seems like an unnecessary expense when you’re starting out, but it puts your business at serious risk. A good insurance policy for your business is a safety net if anything goes wrong. Without it, you could be liable to pay for any legal costs and compensation.
There are four main types of business insurance to consider:
- Employer’s liability insurance — This will cover you against any injury claims from employees.
- Professional indemnity insurance — This covers you against any claims from clients that involve mistakes or copyright infringement.
- Building and contents insurance — The company from which you lease your business premises won’t usually insure your contents. This insurance covers your contents should the worst happen.
- Public and product liability insurance — If you sell products or your customers visit your business, you will need this insurance. It covers you in the event of injury or damage to a member of the public.
Sales and Marketing
No new business can succeed without a steady stream of new customers. Sales and marketing are vital for almost every industry — regardless of whether you’re B2B or B2C. Marketing will be an ongoing cost, but it’s worth a more significant investment when starting your business. Most new companies use digital marketing to attract new customers as it’s budget-friendly and effective.
One of the first investments you will need to make is building your website. Very few modern businesses can operate without a website. You have a few options available for building a website:
- Build it yourself (if you’ve got the skills)
- Hire a freelancer
- Use a web design agency.
Each of the options has different associated costs, and you’ll need to calculate these. The cost of a website varies depending on specifications. A new website can cost anywhere between £200 and £10,000.
Employing Staff
Staffing costs for a new business are more about how much you can afford. Full-time employees are a more expensive investment than part-time or freelance workers. If you plan on hiring full-time, you’ll need to research industry salary averages. This research will allow you to budget for staff or look into alternatives.
Often new businesses will choose a more flexible option. Freelancers and part-time staff are a smaller financial commitment. Flexible contracts mean that you can change hours to suit the needs of your business.
If you can afford to hire full-time employees, bear in mind recruitment costs. Recruitment agencies and websites have fees for advertising roles. Advertising roles on your own will be challenging, so agency prices are often worth it.
Products and Stock
If you’re starting a retail or wholesale business, you’ll need to invest in stock to sell. Before you can do anything, you’ll need to research your industry to find popular products. You’ll also need to research the best supplier and build relationships with them.
Often new businesses will buy too much stock without knowing what will sell and what won’t. To avoid this, it’s a good idea to start small with ordering stock. Small orders mean that you can minimise losses and avoid hefty supplier bills for unsold stock. Once your business has been running for a while, you’ll know more about your customers and what they buy.
One alternative to the traditional method is dropshipping. Dropshipping lets you buy products from a third party when customers place an order with you. This means that you won’t handle and process the products and can avoid unnecessary expenses.
How to Calculate the Cost of Setting up a Limited Company
The categories above will give you a good starting point for calculating your start-up costs. But every business is different. You’ll need to assess your own needs to create an accurate estimate of costs. It’s a good idea to split your start-up costs into four categories:
- Start-up assets — This is everything that you need to buy for your business to operate. It could be machinery, technology or inventory. You’ll need to research the costs and contract supplier to put together an accurate calculation.
- Start-up costs — This is all the fees and expenses you’ll need to make initially. This includes your Companies House registration fee and website hosting costs.
- Fixed costs — These are the expenses that your business needs to pay regardless of the success. This includes rent and utility bills.
- Variable assets and costs — These are the costs that depend on your business’s success (or failure). This can include the cost of materials and marketing.
Create a list or spreadsheet of all your costs in the different categories. With all your expenses listed, you can see how much you will need to start your business. There is no way to budget perfectly, and there will always be surprise expenses. Creating a detailed start-up budget is the best way to prepare.
Ready to start your limited company? Mint Formations can help you to register your limited company with Companies House for as little as £12.99.
