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How Much Does it Cost to Start a Business in the UK?

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How Much Does it Cost to Start a Business in the UK?
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To start your own business you need several important things - an idea, a lot of determination and the funds available to get the ball rolling. But how much does it cost to start a business? From company formation prices and legal requirements, to payroll and insurance, recognising the costs of starting a business can make sure your idea is viable.


While the average budget for a new UK startup is £5,000, you can start your own company for a lot less when you know how. Here, we’ll cover how much money you need to start a business and how you can minimise these costs to get your business up and running without being out of pocket.


What are typical UK business costs?


So, how much money do you need to start a business? You’ll first need to identify the typical business costs in the UK. 


We’ll explore these costs in more detail below, but here are some typical costs you can expect to get you started.


  • Company formation: In the UK, you need to register your company with Companies House to form your new business. You can either do this yourself through the Companies House website, which costs £50, or get us to take care of the formation process completely free of charge. 


  • Registering for taxes: You’ll need to register for Corporation Tax within three months of starting to do business. You can register for free or hire an accountant to sort it for you if you’d prefer. How much an accountant charges for small businesses will vary from £60 a month to £250 depending on your turnover and where in the UK you’re based.

  • Business insurance: What business insurance you’ll need will depend on the nature of your company and if you have employees. If you’re looking to hire people to work with you, you’re legally required to have employer’s liability insurance. You may also choose to take out public liability insurance if you regularly communicate with or serve members of the public. How much your business insurance will be will depend on the type you need and your cover limits. 

  • Branding: There’s no doubt you’ll want your business to stand out from the crowd. If you need help establishing your company’s image, our branding package is available for £190, which includes all your core branding elements. Alternatively, to keep costs down you may choose to hire a freelancer to put together a company logo for example.

  • Domain: To support your professional image, you’ll want to register your domain. How much your domain will cost will depend on the type you choose - ‘.com’ sites typically range from £10 to £17 a year, whereas if you’re a tech business you may prefer a ‘.io’ domain which can cost you up to £70 a year. 


Now let’s explore in more detail the costs you’ll need to keep in mind when starting a business.


Research and learning


Not only is preparing to start a business time intensive - from researching the industry to writing a business plan - it can cost you money too. 


You may choose to take a management course to brush up on your knowledge and put you in good stead for your new venture. The cost of this will vary depending on if you learn virtually or in-person, and where in the UK you’re based. Alternatively, there are a broad range of free online resources for you to take advantage of; from YouTube to online forums, to help you brush up on your knowledge.


To make sure your business idea is viable, you might want to carry out some test trades - make sure to factor this cost into your business plan. 


Equipment and premises


Factor into your budget any equipment you’ll need to buy to get your business up and running. Maybe you’re looking to upgrade your laptop, or need a certain type of machinery. Ask yourself if you need to buy these items straight away. Could you rent the equipment initially to keep costs down?


If you’re looking to stick to a budget, you may want to avoid renting a physical office space. Could you initially trade from your home to test your business idea before you commit to a workspace?


If you’re looking to have a business address but want to cut down on costs, our virtual office package could be right for you. You’ll gain a virtual office address right in the heart of Manchester, to protect your privacy and maintain your professional image. 


Branding


Another cost to consider could be branding services to give your company an edge. Working with a branding specialist can help your business get noticed and increase customer loyalty, because once customers find a brand they love, they tend to stick with it. But how much does branding cost? It depends! The cost will vary depending on what you’re looking for and who you hire. Do you need a brand strategy or brand guidelines? Or just someone to help you create a logo? If you work with a branding agency, you’ll usually be charged a monthly fee which will be based on the work you need doing.


As mentioned, you could cut costs by hiring a freelancer to take care of your branding.


Insurance


Business insurance can protect you against accidents, theft and damage but the type of cover you need will depend on the type of company you’re starting and how you’ll run it. 


If you’re planning on hiring people, the only insurance policy that’s a legal requirement to have is employers’ liability insurance. This covers your business if one of your employees claims they’ve suffered illness or injury while working for you. If you don’t have employers’ liability insurance, you can be fined £2,500 for every day you go unprotected - so it’s not worth risking. The average cost ranges from around £61 per year for a single office worker, and up to £200-600 for a trade worker - but premiums will rise depending on the number of employees you have and the riskiness of the work you do. As you may expect, an office worker is cheaper to insure than a builder, for example. 


While not a legal requirement, professional indemnity insurance may be worth looking into. This insurance can protect you from the cost of compensating a client if you make a mistake, have been negligent, or offered them poor advice. The cost of professional indemnity can range £45 to thousands per year depending on the size of your business and the riskiness of your work.


Staff and payroll


Another business expense you’ll need to bear in mind is the costs of your staff and payroll. It’s easy to assume that your only expense will be your employees’ salary. But in reality, an employee costs more than just their wages.


There are other costs of employment you’ll need to consider, including:


  • Employer’s National Insurance: This is National Insurance you pay on your employee’s salary - which will vary depending on how much the employee earns and their National Insurance category letter. You’ll pay Class 1 National Insurance on employees’ earnings above the secondary thresholds, at 13.8%.

  • Auto-enrolment pension contribution: In the UK, employers must offer a pension scheme for eligible employees. Employees can then choose to opt out of auto-enrolment should they choose to. Since 2019, the minimum total contribution has been fixed at 8%, with a minimum of 3% coming from the employer. 

  • Employers’ liability insurance: As mentioned, if you’re hiring employees you’ll need employers’ liability insurance as a legal requirement. How much this costs will depend on the number of employees you have and how risky your work is.

  • PAYE payroll system: Using payroll software can make your business’ payroll easier to manage. If you choose to run payroll yourself, you need software to report to HMRC. It can help you report information, work out how much you need to pay HMRC and calculate things like sick and maternity pay. The cost of these services can vary but on average you can expect to pay £10-25 per month. To help you find the best provider, HMRC has a list of software that is recognised by them. 


How to calculate your business costs


We’ve listed several business costs above, some of which you may not have thought of - but try not to let that put you off. Thoroughly calculating how much your business will cost can alleviate your worries and help you feel in control of things.


Here are some tips to help you calculate your business costs: 


  • Identify your expenses: These are costs that are unavoidable. From insurance and employee salaries, to equipment and branding. 

  • Estimate your costs: Once you have your list of expenses, you can research how much these should cost. Some expenses will have clear costs published online, while others will be less certain right now, like your employees’ salaries. Don’t be afraid to reach out to companies and service providers to ask what they charge. 

  • Get a total cost: Once you have a list of potential costs, it’s time to add them up. From there, you can split these expenses into one-time costs and monthly expenses. One-time costs will be things you’ll need to get your business off the ground, such as equipment. Whereas monthly expenses will include salaries, office rent and bills. 

  • Plan your funding: Now you have a good idea of how much it will cost to start your business, you work out how you’re going to afford it. You may choose to take out a business loan, use your savings, or start crowdfunding. 


Ways to minimise your startup costs


The more money you can save when starting out, the more you’ll have to grow your business over time. 


Here are some ways you could reduce your spending when setting up your business: 


  • Rent rather than buy: There may be some equipment you only need short-term, like a camera to take product photos. Could you borrow from a friend or rent it rather than buying one yourself? That way, you can see how much you actually use the equipment before you decide to buy.

  • Online marketplaces: To keep costs down you could try selling your product online through sites like Etsy, eBay, Amazon or Business Support Club, before investing in your own website. Once your sales have blown up, you can get your own website sorted!

  • Go paperless: Paper, ink and postage costs can add up quickly. You could go paperless by avoiding printing unless absolutely necessary, sending digital invoices and filing paperwork digitally rather than in a filing cabinet.

  • Work from home: Do you really need to rent an office space from the get-go? You could test your business idea from home before you commit to a workspace.  

  • Tax relief: Look into the various tax reliefs and allowances you’re entitled to as a business owner. For example, if you’re self-employed you can deduct some of your running costs as part of your annual tax return, such as office stationery, insurance and bank charges. 


Where can I get the money to start a business?


Now you have an idea of how much it’ll cost to start your business, you’ll need to work out how you’re going to finance your new venture. While you shouldn’t let money stand in the way of you chasing your dream, it’s important to make sure your business idea is both viable and affordable to avoid financial difficulties later on.


Some ways you could finance your business include:


  • Your own savings: While financing your business out of your own pocket may sound unachievable, with patience and accountability it can happen. Set yourself a goal, choose a savings account with a competitive interest rate and cut back on unnecessary living expenses. You’ll be surprised how much you can save!

  • Business loan: A business loan works in a similar way to other types of loans. You apply through a bank and repay the amount through regular repayments. How much you’ll be allowed to borrow will usually depend on your credit score. Like any type of borrowing, make sure the debt you take on is affordable and that you’ll be able to keep up with the repayments. 

  • Crowdfunding: Another option to get your business up and running is crowdfunding, This involves you getting a ‘crowd’ to fund your new business. There are a few options such as donation-based funding where your contributors will donate money without receiving anything in return. With debt-based funding, those who donate will be repaid with interest.

  • Government-backed loan: Another option is applying for the government-backed Start Up Loan. You can borrow anything from £500 to £25,000 subject to acceptance. Just bear in mind that you will be charged for your borrowing, at a fixed interest rate of 6% per year. 


Seek professional help


If you’re looking to start a business, it’s likely you’ve been mulling over the idea for a while. To alleviate any worries, you may find it helpful to discuss your business idea with a professional. From how you’re going to afford to be your own boss, to any worries you may have, a professional can keep your worries at bay. 


You may choose to hire an accountant or financial adviser to help you make sense of your finances and check everything is in order. As you start to bring customers in and your business grows, an expert adviser can help you make informed decisions about hiring employees, investing in new equipment and keeping on top of your taxes. 


Chase your business dream today


Starting your own business doesn’t need to feel like hard work. Our company formation service can take the reins, from forming your business with Companies House on your behalf, to supporting you every step of the way. You’ll have everything sorted in no time, boss! Apply to form your company with SUAZ today.


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