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Can you Afford to Start up Your Own Business?

Starting your own business can be daunting, with perhaps the most stressful aspect being the finances. According to Lloyds Bank, the average cost of starting a new business is £12,601, which takes into account the cost of business space, vehicles, and technology.

The study also found that almost a third of new business owners (23 per cent) found that the cost of starting up a business was higher than they expected. New entrepreneurs are likely to encounter hidden expenses while trying to get their business off the ground. Common areas where inexperience can cause increased spending include: marketing and media spend, website development and office supplies.

You can’t buy experience ahead of time, but you can be better prepared with more realistic budgets. Here we offer guidance on common overspending areas and ways to work smarter to protect your business.

Don’t spend all your savings on launching your business

While you may be inclined to use all of your savings to launch your business, it’s a good idea to have a stocked savings account as a backup plan. This contingency fund is ideal, and necessary, to help you deal with hidden or unexpected costs.

If you are working full time to launch a new business, you may be tempted/forced to use these savings to live off before your startup begins to generate income. Most entrepreneurs will look for a loan to help them launch their startup, however not everyone is granted the full amount to start their business.

It’s always a good idea to have a fallback plan, such as what you would do if you don’t get the full loan you were hoping for. Always have a idea of what you can cut if you have to, making sure that you keep bills and key staff paid at all times. Consider your cash flow in relation to, for example, your invoices being paid late or manufacturing delays, which could negatively affect your trading.

Understand relative market and media costs for your industry

Before you launch your business, you’ll have a good idea of how your market works and what your price points are, and how much you can afford to spend on marketing. What you may not have considered is whether you media budget and estimates for marketing spend are accurate.

Media audit agency AuditStar advise accounting for competitiveness in your market, as well as ad spend and PPC (Pay Per Click) costs when calculating your media cost. Advertising, marketing, social and media budgets are relative to competition with each industry and the popularity of different promotional routes. It’s important, therefore, to do your market research early on, and cost everything in real terms not market averages.

Relative cost is particularly important online, where Google Pay Per Click and other search engine paid ads can increase in cost overnight. For example, some industries will have more expensive keywords than others, which can affect how you market your business. According to WordStream, the most expensive keywords in Google Adwords Advertising this year are casino, online gambling, and finance. You should also consider the cost of creating promotional material for your business.

Researching into your market, be it media audits or market research reports, can also help you find a niche way to promote your business, as well as the need based on location or terminology. It’s also a good way to analyse how your competitors are conducting business, and advertising their products, and to see what works and what doesn’t work, which will help you develop your business model.

Be insured as much as possible

New business owners should also consider getting insurance, including personal liability insurance as standard. This will protect you if you, your employees, or the product or services cause, or are alleged to have caused, injury or damage to a customer.

You may also consider buying disability insurance, which will cover income lost due to injury from an accident or illness beyond 90 days. However, taking out insurance policies will add to your business costs, which you will need to take into account before launching your startup. It’s all about balance and deciding how safe certain policies will make you feel as a business owner.

Are you ready to pay the personal costs of running a business?

While you may feel financially prepared to launch your business, you should still consider the risks involved before starting. Owning a business comes with its own unique risks, including adding a strain on your personal life. Keeping up with launching and owning a business can put a strain on your private relationships with friends and family, as you may find that all of your time is being invested in making sure your business is running smoothly.