Are you thinking of setting up a business in the next 12 months? Have you given enough consideration to how much this venture is likely to cost you both in terms of time and money in the first months of trading? The chances are the answer is probably not. As accountants we know that the initial costs of setting up a start-up business are often underestimated by entrepreneurs, and unfortunately that can have disastrous consequences for the long-term health of the business.
The extent of these unexpected costs has been the subject of recent research by online business services company, Geniac. Geniac found that many British entrepreneurs experienced unexpected business expenses in their first year of business, and that had a knock on effect on growth. What sort of expenses are we talking about? Well, Geniac’s research found that an average start-up invests £22,756 in the first 12 months of trading to cover essential business administration, accountancy, company formation and HR and legal service costs. Unfortunately Geniac’s research found that small business owners underestimated business expenses by more than 10 per cent, equating to £2,525 on average.
So what sort of costs do start-up businesses face? Well, companies will inevitably have to finance many initial costs, the most significant of which are the ones relating to company formation: these costs can amount to in excess of a quarter (28 per cent) of the total amount, and include company set-up, drafting articles of association, board minutes and shareholdings. What about accountancy costs? Well, Geniac found that these costs tend to be seriously underestimated by start-ups. The research found that the short fall between predicted and actual costs in the first operational year was on average £1,723.
What are the consequences of underestimating these costs? Well, 64 per cent of the business owners polled by Geniac said costs impacted negatively on their businesses: 23 per cent suffered profit losses, 21 per cent had to readjust growth targets and 7 per cent unfortunately were forced to make staff redundant.
Speaking about the survey, Geniac co-founder, Mike Galvin, said it is important that start-ups enter the market with their eyes fully open. Costs are inevitable, but there is no need to pay over the odds for good business service advice. His advice is to shop around. With a strong business plan, a sound strategy and good financial advice, he believes it is possible for any start-up to turn a business idea into a profitable reality:
“It’s a case of forewarned is forearmed. Geniac is on a mission to make sure entrepreneurs and business owners don’t waste unnecessary time or money on business administration.”
If you’re an entrepreneur looking to set up a new business, Steven Glicher accountants can help you. We can work with you and help you to prepare a sound business plan, and can even help you to seek funding or investment. For more information on how Steven Glicher accountants can help your business call Steven Glicher on 0161 485 8007 or email info@.