Instead of paying the Companies House incorporation fee of £75, you can use the Formations Company and do it for a fiver, for example. There are ways to bring down the costs of starting a business, but you have to be savvy. It is important to know what kind of hit this nest egg is likely to take. Direct Line for Business has estimated that 39pc of businesses dip into personal savings to fund their new business. Given that many business owners use personal savings to fund their start-up, knowing these figures is crucial. The North of England is the second most expensive area in the country for new businesses, with the average small business in that region paying a third more in the first year compared with those setting up in the South East. London-based entrepreneurs, unsurprisingly, will be hit with the biggest bill – £30,211 – while entrepreneurs in Wales pay the least at just £8,096.
The amount it costs to set up a business also varies depending where you are in the country. Rob Law, the designer inventor behind the kids ride-on suitcase Trunki, recently told me that he spent £60,000 in the first year when setting up Magmatic. They can also be far more expensive to launch. Julie Deane, founder of bagmaker The Cambridge Satchel Company, famously began her business with just £600. That is not to say that businesses cannot be started for less. The research found that start-up founders tend to underestimate costs by around £2,000. This may be a useful guide for anyone considering taking the plunge, and prevent any shocks down the road when the costs start adding up. This figure is broken down into £6,259 on legal costs, £3,937 on accountancy, £4,518 for HR and £5,518 on the formation of the company. This does not include the money spent on business-specific activities, such as buying stock or developing a product. When taking into account incorporation costs, accountants’ fees, some legal costs, HR overheads and general administration, the average UK start-up spends £22,756 in its first year. Wonder no more – a study commissioned by Geniac, an online business service, has now calculated an average that start-up founders can use as a rule of thumb. This is one of the biggest unknowns for would-be entrepreneurs – how much money they need to survive that first year in business. How much would you budget to get that start-up off the ground? You’ve sketched out a business plan on the back of an envelope. You’re thinking about jacking in the day job to make it happen.
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