If you go down the incorporation route then you can secure a company and have it up and running for under £1,000. To keep costs down you can also register for VAT and Paye yourself although we would not recommend it. While the business is in its infancy you do not need to invest in accounting software and can maintain the records yourself on Excel or even a paper cashbook (not really recommended these days!). Accounting software (cloud based) can cost as little as £20 per month.
The other costs will really depend upon what type of business you are starting. If you are going to be a consultant working from home then there will be very few other costs at the outset but you will need to calculate what working capital you need to meet your personal expenses whilst you are starting the business and income coming in will be slow. Even if the business starts to generate income immediately you will need to consider the time delay between invoicing and receiving the money.
Depending upon the business, will you need working capital to buy stock at the outset and fund on-going purchases until sales income is received? If you are going to invest in offices it might be better to start with serviced offices so you know the total cost of all your office related expenditure on a monthly basis. Again how much this costs will depend upon your needs and where you are renting. What is the bank going to charge you for a corporate account and will they also require extra fees if you need other services such as a credit card payment system? Will you need to invest in IT at the outset?
This really depends on the nature of your business. Some businesses are very capital intensive and require a lot of equipment or development before they start or may require a lot of money to cover overheads to find new customers and to provide the services eg marketing and wages costs.
For example, a business involved in research and development (R&D) may need £300-400k before they could even start – to buy equipment, rent a warehouse and perform R&D trials.
Someone involved in regulated areas, such as those authorised by the Financial Conduct Authority (FCA), would have to spend a lot of money on compliance to obtain a licence. However, other businesses may not need much beyond a laptop and internet connection, and so would need a lot less in order to start. For example, if you have developers within your team, you might save money on building your website or app – although you may still need funds to market your business or grow it.
It’s normally a good idea to prepare a cashflow forecast to work out your startup costs and monthly outgoings and then you can work backwards to see how much revenue you’d need to generate in order to stay afloat and to make a sufficient profit. Most startups can take a while to start generating cash so it’s preferable to have some savings set aside to also cover your living costs in the first 6-12 months. However, some of my clients will also bootstrap by continuing to work 9-5 or on a temporary basis whilst they work on their business in their spare time.
Surekhah is a director at the Carnelian Consultancy and has provided video responses to a number of entrepreneur’s questions, including this one.
Follow the link to see her advice on what money you will need to start up your business. Hear Surekhah’s advice in full
This is the proverbial ‘piece of string’ question. A small business whose only productive resource is its owner and which sells his/ her services will probably need negligible startup capital whereas, by contrast, a production business such as a microbrewery which requires premises and equipment may need £100k or more to get off the ground.
If your business plan calls for any significant investment it is crucial to write a business plan before you commit yourself. This should include cashflow forecasts and you should flex these to test whether you will have adequate finance under the various possible scenarios. Lack of capital can destroy a business in its infancy and you don’t want to find yourself caught short through lack of planning.
Hear Paul’s expert advice on Paul Stankiewicz of ICAEW BAS member firm, Paul Marks and Co Chartered Accountants. Paul has provide answers as a series of video responses for entrepreneurs and would-be entrepreneurs.
Listen to his response here: Hear Paul’s advice in full
You should do a business plan before starting a business to calculate the cash you may need and put in a buffer. Cash flow is like blood to a business. Your business will not survive, even if profitable, unless it has enough cash to function. In the current environment, banks are unreliable and often unwilling lenders. In the majority of cases it is the first two years of a new starting business that are the toughest. You will need to have enough cash to use as working capital, something which is very often overlooked.
You will need to have enough cash to invest in any new equipment or products, in order to keep you going for at least 6 months initially, and then also after your business gets established. Oh and you’ll also need to eat and pay the rent whilst doing that as well. You need to be very realistic when doing cash flow planning.
This depends on your business model and your forecast income/ expenditures in the first year (and maybe even longer). In particular you will need to determine how much you need to spend on initial start up costs (this can include things like equipment, office costs, research, professional fees and other one-off start up costs).
Importantly, even once you pay for these, you may not make a profit in the initial period of, say, a year (ie your monthly income will be less than your monthly expenditure), and therefore you will also need to fund the period when you are making these trading losses. Given the above, these two areas should be estimated at the outset by preparing a forecast, which is a schedule of income/ costs for the initial year (or years). From this, you can then estimate just how much money you need to set up the business.
The only way of getting a definitive answer to this question is to prepare a cashflow forecast for the initial trading period of the business – at least the first year, with ideally a further 2 years added on. Your business will need funds to cover 2 principal categories of start-up costs:
1) Investment in capital spend required – ie cost of acquiring premises, fixtures & fittings, computer & other equipment.
2) Working capital funding to cover running costs (staff, office costs, rent etc) plus the minimum level of drawings/ salary required by the owner/s before the business starts to generate sufficient cash from trading to cover these costs. A monthly cashflow forecast will identify the above costs and indicate on a cumulative basis the maximum amount of start-up money required.
The answer depends on the nature of your business. Service sector businesses need comparatively little upfront investment whereas manufacturing and trading activities would need considerably more money to begin with. For example, you may start a window cleaning business with only £10 and may earn up to £100 by the end of a good day.
Even when you hold a reasonable amount of money to start any business, I advise my clients not to tie their money up with large capital expenditure. You can outsource almost all activities nowadays from manufacturing, packaging and distribution etc.