When you first look into starting your own small business you’ll soon discover that there is very little information available on how much it actually costs to start and run a one. Yet it’s possibly one of the most frequent questions that I’m asked – ‘how much am I going to have to pay out at the start?’ So in this blog post I’ve pulled together some really useful information, mostly from my The Resilient Retail Product Business Survey.
Small Business Start-up costs
The figures from the survey suggest that around one fifth of product businesses started with less than £1000 of expenses in the first year, and by far the largest proportion (42.7%) of businesses spend between £1000 and £5000. Of course these figures impact differently depending on how much you have in your ‘pot’ to start with.
I wanted to explore what impact the type of small business had on the findings, as anecdotally I had seen that small businesses who manufacture tended to have higher start-up costs.
Breaking the costs down by product type showed that handmade product businesses typically had the lowest start-up costs which was what I expected. However, manufacturing and purchasing from other retailers both were skewed towards higher costs. In fact, retailers that bought from other small businesses had the highest percentage of people who had spent £20,000-£50,000 in their first year.
The biggest expenses
There were no surprises that 75% of small businesses stated that their stock was the biggest expense that they had when starting up. My advice for product businesses is to start small – stock a small, exclusive range of products and test those out. You can gauge via sales and customer feedback if the products are a success. There are lots of examples of now successful businesses doing this – for example Innocent Smoothies started by testing their products at a festival before becoming a business!
The other areas that were frequently mentioned were equipment costs including machinery, and renovations to selling premises or workshops. If your budget is small when starting out the advantage of a product business is you don’t have to leap into bricks and mortar premises immediately – you could start with an online store or a market stall. Again this also enables you to test out products and get a feel for who your ‘audience’ is – all key insights for when you do decide to find premises of your own.
Costs per month
While the size of the start-up costs for some models of small product businesses may seem daunting, the monthly overheads showed a more optimistic view. One third of small businesses were spending less than £100 a month, and two thirds in total spent under £500.
So this reminds us that having a business plan before you embark on starting your new small business is time and effort well spent. If you have mapped out the first 6-12 months you should have a good idea of monthly projected costs – that will show that the initial outlay is the largest for the first year or so of your small business. Part of your business plan will look at your sales plan – having an idea how much you need to make as ‘profit’ each month to keep going! My podcast episode 10 ‘Creating a sales plan for your business’ is well worth a listen when thinking about this.
So although there isn’t a magic calculation to tell you how much it will cost to start your own small product business – I hope this blog post gives you a good idea and provides you with some tools and insights to plan. When you start working through your business plan you’ll be amazed how much clearer you’ll be on initial outlay costs and then the monthly outgoings – this is an exciting part of any new business so enjoy it and good luck!
You may find my podcast episode 7 ‘5 Things You Need To Know Before Starting Your Business’ useful at this stage too.