How Much Does It Cost To Start A Business

A reader asks:

How much does it cost to start a business in the UK?

Unfortunately  asking "how much does it cost to start up a business" is like asking "how long is a piece of string". There is no simple, one size fits all answer. However there are a number of typical business start-up costs that you can expect to factor in to the start up cost of a business:

• the cost of acquiring the business, or franchise (should you choose to buy either an existing business or a franchise);
• the cost of premises and associated fees;
• the cost of fitting out a shop or equipping an office;
• legal fees;
• sufficient working capital which should include:
• at least six months of marketing;
• at least six months salary for staff (including a basic salary for yourself);
• at least six months worth of lease payments;
• an allowance for the cost of stock to cover any difference between when the customer pays you and you pay your supplier;
• six months worth of loan repayments;
• the costs of setting up phone lines, buying uniforms and other materials required;
• a contingency fund for unexpected costs (there will be some).

Once you have determined what each of these costs are you’ll be able to add it all up to determine your overall business start-up cost. For many traditional (i.e. retail/high street) businesses the cost to start a business will run to around £50,000-£200,000. In contrast many service or online businesses can be started with less than £5,000. If even that sounds too high, or you’re trying to minimise your start up cost for a business you might like to read: How To Start A Business With No Money.

Useful books:

• How Much Does It Cost To Start A New Business?

Asking John:
Do you have a business question you would like me to answer? If so you can Ask John or or you can ask on the forums where you’ll get both my input and that of your fellow entrepreneurs.

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• 1

  Hi John,

  Drop shipping is (apparently)transforming inventory for many home businesses, though I guess you need to factor in the slightly higher costs for the service, and lay them against the savings you make on storage.

  Any thoughts on this out there? Is drop shipping actually safe/cost effective?

  Only heard of it, never tried it.

  Sahail Ashraf on June 23rd, 2009
• 2

  Drop shipping is an excellent way to reduce inventory costs and it’s more commonly used by “big” business than most people realise.

  Unfortunately however there are some drop shipping services that have sprung up in recent years targeting home/Ebay businesses that are bordering on being scams. Typically these are the ones that charge a membership fee or joining fee. I have yet to come across a reputable supplier that charges any joining/membership fees.

  It can be very cost effective offering you access to economies of scale that you could not otherwise achieve.

  John on June 23rd, 2009
• 3

  I’m in the process of starting up an online business (Coding and Designing the website, have a degree in computer systems engineering) and the biggest expense is going to be marketing. So I have been looking for ways to reduce that. As my business is going to be online I have lots of options. Other than that I have thought of new ways to promote a business that I do not yet want to share, as one of them may turn into a business opportunity.

  Anyways the point is cost of starting a business is relative to how much you know and who you know. I say this because if I was to pay someone to design and code the website I would instantly add a huge expense to the budget. This obviously doesn’t mean everyone should design and code their websites, reason being if your website looks unprofessional then that will send out the wrong messages.

  Saf on June 24th, 2009
• 4

  Saf,

  Good point, I’ve a similar background (software engineering) and that’s certainly helped reduce the cost of many of my business ventures. If I hadn’t written the software myself it would have been too expensive for me to start-up.

  John on June 24th, 2009
• 5

  sahail,

  Drop shipping can be a good business. I know people who just target one or two particular products and advertise them via Google PPC. Although they are not making fortunes they are doing well. There are also some good books out there on the subject but I am not sure if I am allowed to mention them.

  On this issue of start up costs it is the one issue we all tend to forget about, or under estimate.

  We also tend not to keep a close eye on the costs, thinking oh well a couple of sales will cover it. Unfortunately the sales do not always come! I know from bitter experience

  Paul Grainger on July 1st, 2009
• 6

  Can one set up a PPC/Drop ship business and make a living? Would love to know so I can tell my readers on my snarthomeworker blog.

  Sahail Ashraf on July 2nd, 2009
• 7

  Can you live off PPC/drop ship combinations?

  Would love to know so I can tell readers of my blog.

  Sahail Ashraf on July 2nd, 2009
• 8

  Sahail,

  You can make a living, but my tip would be to advertise for a specific product and make sure it quite high value with a high margin.

  For example you may do a high ticket electrical item that costs several thousand pounds and only PPC that very model, which should give you very little competition and willing buyers.

  If someone searches for an airconditioning unit by the manafacturer ABC model 123, they are likely to be willing buyers.

  Hope this helps!

  Paul Grainger on July 2nd, 2009
• 9

  That’s great Paul, and where do the high costs come into it? I’ve heard that you have to part-pay for inventory? Sorry for the questions, just interested in it?

  Do you pay, how much, is it worth the risk?

  Sahail Ashraf on July 2nd, 2009
• 10

  Sahail,

  Part paying for invetory is more like importing. Most drop shipping arrangements you do not pay anything you effectively just get a commission for bringing the customer and the product together.

  Your cost is in the PPC advertising. The key is the correct product with little competition for that EXACT term.

  You might want to buy a manual from a guy called Dave Berriman called drop ship mentor. The sales page is a bit scammy/biz oppy but the content is suprisingly good. He is also making a good living out of it and gives you real examples of success.

  Let me know how you get on. You might be able to get it on ebay if you do not want to pay full price.

  Paul Grainger on July 2nd, 2009
• 11

  Sounds like a great business income stream.

  Sahail Ashraf on July 4th, 2009