Money Matters

How much money do you need to start a business?

Want to start a business but unsure how much money you'll need to do so? Here, we cover some expenses that you'll need to consider.

Becoming a successful entrepreneur takes vision, grit and a dose of luck. It also usually requires some money.

The amount of money you need to start a business depends on the industry you’ll be entering, the equipment and resources you need, your location and personal circumstances.

That being said, it’s possible to get a rough idea of the budget you’ll need by looking at common costs.

We’ve pulled together data on typical startup expenditure in the UK. You can use these figures as a rough guide for the amount you’ll need to save.

Of course, you’ll need to do additional research to calculate the required amount of capital to start a business in your personal situation.

Here’s what we cover in this article:

Money needed to start a business by sector

How much is needed to start a business in the UK?

Estimated costs for a new startup

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Unsurprisingly, different industries have different startup capital requirements.

Many freelance ‘creative’ jobs require little more than a laptop and an internet connection. On the other hand, food and drink businesses need stock and premises, so have higher startup costs too.

According to a survey by The Company Warehouse:

  • Most creative and tech founders start a business with £1,000 or less
  • Finance and recruitment companies spend most, often launching with more than £10,000 in savings
  • Food and property entrepreneurs tend to start a business with £5,000 to £10,000
  • Most consultancy and events firms start out with £1,000 to £5,000
  • Other sectors such as retail, leisure or health have a fairly even spread across budget brackets.

It isn’t possible to give an exact figure for how much money you need to start a business, since every company is different.

However, we can calculate some of the common categories of startup expenses to give you a rough estimate. You can then use this information and a little of your own research to work out how much to save.

Get out a pen and some paper, open a new tab on your internet browser and start researching the following costs for your business idea.

1. Equipment costs

Think about all the equipment that will be necessary for you to run the business.

This includes computers, tools, machinery, stationery, desks and chairs, point of sale systems, card terminals and any other hardware needed to be operational.

Rough estimate: £300 – £2,000 up front.

2. Registration

You need to tell the government that you are launching a new business. You can choose to structure the business as a sole trader, partnership or limited company.

The former two structures are completely free but come with a little extra risk as if something went wrong, you’d be personally liable to pay for the damages.

A limited company is its own entity, meaning the company and its assets could be sued if something when wrong.

You might also pay less tax in this way (an accountant or tax adviser would be able to offer the advice you’d need here).

Setting up a limited company online costs just £12, although many people get a company formation specialist to do the paperwork for them.

Rough estimate: £0 – £100 up front.

3. Workspace

The costs of a business workspace depend on your sector and location as well as the type of set-up you prefer.

  • Work from home: This is suitable for many service businesses and virtually cost-free.
  • Office space: Prices vary dramatically around the country. You can expect to pay around £20/month per square foot in Newcastle upon Tyne, for example, whereas office space in central London can cost four times that.
  • Retail space: Retail rents also vary around the country. London’s West End is extremely expensive – expect to pay more than £180 per square foot per month. However, elsewhere in London and much of the rest of the country, you’ll pay between £10 – £20 per square foot.

Rough estimate: £0 – £5,000 per month plus deposit.

4. Inventory

If you plan to launch a retail, food or manufacturing business, you’ll need to invest in goods or raw materials.

To begin with, you won’t want to invest too much in stock as you won’t want all your money tied up in products that may not sell.

Rough estimate: £500 – £1,000 up front.

5. Marketing

No one’s going to know about your business if you don’t promote it.

The good news is that a lot of marketing can be done for free (or at least at low cost), especially if you’re savvy with social media and are confident setting up your own website.

Initial marketing costs could include:

  • Setting up and hosting website: £30 – £1,000 for design and build, then around £30/month
  • Social media: £0 to £100 per month
  • Online advertising: With a pay-per-click (PPC) ad, you pay a small amount of money everyone time someone clicks on it. Budget £50 – £200 per month
  • Printing fliers: For delivery or handing out at events, or even door to door. Expect to pay £25 and up.

6. Utilities

This covers electricity, heating, phone and internet bills, and anything else. If you run a retail or hospitality business, you’ll have to pay business rates, too.

Rough estimate: £60 to £200 per month. 

7. Insurance

Getting your business insured gives you peace of mind in case anything goes wrong. This includes liability insurance, which pays out if you get taken to court, as well as sickness insurance.

In certain industries (such as construction), contracts often stipulate that you must have public liability insurance.

Rough estimate: £0 – £50 per month.

8. Tax, accounting and legal

It’s possible to do a lot of business administration yourself. However, figuring out your accounts or filing for patents can be incredibly time consuming.

Most business owners use accounting software that makes bookkeeping much easier or they outsource administrative duties to a specialist, such as an accountant or a bookkeeper.

Rough estimate: £60 – £150 per month.

9. Payroll

If you’re planning on employing people, you’ll have to pay them a salary.

Depending on their experience and whether they work part time or full time, this cost can vary a lot. You might also have to pay money up front to advertise the job online.

Using payroll software will help you stay on top of your payroll requirements.

Rough estimate: Around £50 up front, then £500 – £2,000+ per employee per month

10. Business operations costs

Every business has specific operating costs. A taxi firm will spend money on fuel. An online retailer will spend money on shipping. A printing business will need ink.

Working out how much money to start a business in your sector will require you to add up these operating costs.

Rough estimate: £10 – £300 per month.

As a final note, you’ll want to consider setting up an emergency fund. This should be enough to pay for all your ongoing expenses if you had a difficult trading period and didn’t bring any money in.

As a rule of thumb, you should aim to save up for at least three months’ expenses.

More about money to start a business

Figuring out exactly how much money is needed to start a business requires plenty of research. Entrepreneurs are naturally optimistic but try not to underestimate the costs.

This will mean you save up enough and don’t run out of money.

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