Starting a company can appear to be a daunting task, for example, many people find organising their business finances overwhelming. After all, before you earn a penny you likely need to pump thousands of pounds into the business. However, these start-up costs don’t need to be a barrier. Learn more about what startup costs are, why they matter, some examples of costs and how to manage them:
What are Small Business Startup Costs?
Small business startup costs are a simple concept, referring to the initial spending that a company has to complete in order to begin doing business. This tends to be the money that a company spends before it is able to produce any goods or services, with start-up spending coming before companies begin to generate any revenue.
These costs vary from industry to industry and scale in line with the size of the company. Any businesses attempting to innovate in their field are likely to see higher costs.
Why Small Business Startup Costs Matter
The costs of starting a business matter for a few reasons, the first of which is the idea of business continuity. Knowing your business startup costs means that you are able to save enough money and get enough external investment before you begin, limiting the chance of inconsistency in your business operations.
Importantly, to be considered a startup cost most of this spending is a one-time expenditure. Analysing these costs lets you know how far away you are from getting your business dream started.
Examples of Small business Startup Costs
There are plenty of different types of small business startup costs that you need to look out for, with each providing its own individual challenges and planning requirements.
Understanding all of these costs provides you with a better foundation and makes sure that you are prepared for the pressures that are to follow. Some of the main examples of small business startup costs are:
When most people think about staffing costs in a business, their mind goes to wages and bonuses, with these being regular spending items that a company completes on a consistent basis.
However, wages are not the most significant staffing cost at the earliest stage of the company’s operations. Businesses that are looking for employees spend a lot of money on the recruitment process, advertising any vacancies and putting time aside to interview and assess all of the candidates.
These costs tend to increase in line with the expertise that the role requires. More complex positions, like management roles and technical jobs, require intensive assessment to get the correct candidate. Each individual step in a recruitment process adds more and more costs that a company needs to absorb.
Overheads and Bills
Overheads and bills are some of the biggest long-term costs for a company and can have a similar impact in the short term. For example, a company that is moving into a factory to start producing goods may need to put a lot of money into an initial deposit for the space. The same applies to any production equipment that the company has to buy rather than hiring or securing on finance.
These costs are likely to be higher in companies that have a physical presence or production line than a business that works primarily in the digital space. Digital companies, for example, can focus on a remote workplace or simply hire a small office, rather than having large spaces with specific requirements. High spending in this area is part of the reason that many companies start small and look to scale as they go.
IT hardware can be a very expensive part of running a business, especially in more technical fields. For example, a visual effects studio needs to have some of the latest graphics cards and processors to have enough power available to produce outcomes that their clients are happy with. When opening a company, that requires investing in a lot of computers all at once, with further costs in the future coming as the hardware requires upgrades.
Some businesses, such as those with more of an office focus that require less intensive technology, work with a Bring Your Own Device (BYOD) or cloud-based strategy. This cuts down on the cost of immediate tech investment, instead letting companies pay on a monthly or annual basis for service-based support.
The amount that companies invest in software varies wildly but is one of the most important parts of modern company operations. Software business solutions such as NetSuite are designed to support businesses with access to software and data management, providing users with a range of permissions and giving companies the resources they need to work more effectively.
Whilst this sounds somewhat counter-productive, the more a company spends on their software, the more financially efficient they can be. Using a managed IT service efficiently increases the growth potential of a company, driving revenue up and providing a significant return on investment. These companies are effectively biting the bullet in the short run in exchange for long-term returns and stability.
How to Manage Startup Costs
There are a few things that you can do when trying to manage your company’s initial startup costs, the first of which is properly understanding them. By spending your time researching the startup costs that you can expect, companies are able to better budget for the earliest stages of their operations.
You can also manage your startup costs by working closely with an accounting team. Using a business accountant might add to your company’s early costs, but at least that means that you know where your money is going and can use it much more efficiently. Take your time when choosing an accountant, as there are some that work in specific businesses and industries and can provide better insight.
If you’re curious about the size, scale and impact of small company startup costs and want to properly prepare a company for the challenges ahead, get started! This is a challenge that you will always need to deal with and is a necessity for getting a business going. Sit down with your business partners, do your research, create a business plan and find investors for the business and take the first steps on your road to a company that you can be proud of.
You’ll find some top tips on things to consider when starting a business in our article Tips for Starting a Business.
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