Depending on the size and scale of your new start up, it can take potentially hundreds of thousands of pounds to successfully launch your business. But it is not only the cost of your initial investment to get your business off the ground that counts, it is also your ongoing costs that you plan to put into your business that you also need to factor in.
It is a good entrepreneur that can sit down and work out their financial plans to the last penny, but you still have to leave a certain amount of elbow room for any unexpected extra expenses and raise capital to cover these events, such as repairs or replacement of essential equipment that you need, or creating a security buffer of cash to tide you over should you experience an overly late payment from a client, or need money to cover ongoing production costs while you recover funds from a defaulting customer.
Underestimating running costs and overheads are the most common mistakes new entrepreneurs make when starting up their first business. Anticipating them and accommodating them ahead of time is going to see your new enterprise be successful. Let’s take a look at some of the most common underestimated costs and how to address them.
1. Legal costs.
In most cases even the smallest of business enterprises need some sort of legal cover in place for protection. This can be anything from formally registering your company (in the UK) or obtaining a business licence to operate. If you plan to hire employees, you will need to draw up formal employment contracts that are legally binding. A solicitor or lawyer can help you with this. All these legalities come at a price, so it pays to do your homework and budget accordingly.
2. Staffing costs.
The costs associated with hiring permanent staff and paying them a salary, as well as bonuses, holiday pay, sickness and maternity pay etc. can be a big drain on your bottom line. There may be savings to be made through offering more flexibility over hours worked, ability to work from home or remotely, or sourcing employment perks that make the job more appealing, but may not cost you any more money in the long run. To begin with, if you are planning a very small set-up, it may pay you to outsource some of your necessary admin tasks such as your business phone calls to a quality call answering service so that you can save money on overheads such as renting office space, buying office furniture, providing IT equipment and infrastructure.
3. Marketing and Social Media costs.
No matter what business you are in, you will need to market your products or services. Whether this is to B2B companies or to a target demographic, you cannot avoid paying out for good solid marketing to help establish your business, raise your brand awareness and grow your initial client base. You can make savings here by working with online digital marketing companies. This way you will not have to pay for the overheads needed to employ in-house marketing or social media staff.
4. Business Insurance.
Many entrepreneurs are so wrapped up in the physical actions of structuring and building their business plan that they often forget about, or leave until the last minute to consider, their business insurance needs. Depending on the type of business you are planning to run, you may be surprised at the amount of cover needed, especially where there is a level of risk associated. It can pay to have your business plan looked over by an insurance expert so you can get an idea of how much you will have to pay out. It would also be wise to have a risk-assessment done once you are fully set up as you could save money off your cover by ensuring all risks are minimised.
5. Ongoing production costs.
Where you are going to be manufacturing physical products to sell, your production line may be one of your most costly investments. This will also most likely be your most expensive ongoing cost of running your business. During your planning stages, it is wise to factor in these costs so you will know what to charge for your goods to cover manufacturing costs. Try not to underestimate these costs as getting your figures wrong here could result in your production line actually running at a loss.
At the end of the day you should never underestimate your costs because it may only take one glitch in the process to bring things to a grinding halt. Budgeting is important but you should try to raise some spare capital to cover for any unexpected issues that you cannot see coming.
