The number of businesses starting up in the UK is increasing year on year, with over 350,000 start-ups already launched this year (1), it is expected to surpass 2015’s figure of 608,110 start-ups(1). With the many advantages of being a business owner, it’s no surprise that many are looking to be their own boss rather than the conventional 9 to 5 job.
There are undeniably many hurdles to cross when venturing on the business start-up journey. From the initial light bulb moment of an idea that is unique or that you’re passionate about to researching and gathering the resources you need to make this idea become a reality – this is just the first step. Then it comes to implementing the plan that you’ve worked so hard and long on, this is where entrepreneurs are making some common mistakes.
The most important part of any business is the figures, these need to be at the top of your head and be as accurate as possible with them. Yet those thinking of starting a business usually underestimate their start-up admin costs by £2,525 on average a new study from Geniac has shown. The average administration investments in the first year are £22,756, covering accountancy, company formation, HR and legal services. These costs do vary significantly across the country however, with London businesses spending on average £30,211 on essential business administration whilst Wales are able to run at less than a third of the cost at £8,096.
The largest proportion of the business administration costs is dedicated to the formation of the company costing an average of £6,378, which is 28 per cent of the total amount. This includes company set-up, drafting articles of association, board minutes and shareholdings (2). However the area of surprise and where particular attention should be paid to are the estimation of accountancy fees incurred in the first year. Start-ups budgeted £1,723 less than the amount existing businesses actually incurred in their first year.
As a result of the total under-estimation of costs, nearly two-thirds (64 per cent) of small business owners were hit with unexpected costs. Negative consequences of this include experiencing profit losses (23 per cent), being forced to readjust growth targets (21 per cent), and having to let staff go to free up cash flow (7 per cent) – all these factors could result in a contribution to business failure (3).
So what can you do to avoid making these mistakes? Research and research some more, pick up the phone and ask for specific costs of items such as company formation – second hand research from the internet could be out of date or unreliable. Even better, go out and see the people who you’ll be paying to use their services such as your lawyer or accountant, ask them what basic costs are and under which circumstances these costs could increase so you can calculate them into your budgets too and be prepared for budget changes.
At Experian Business Express, we understand how hard it can be to manage your cash flow, especially within the early stages of your business; we also understand that budgets are tight and you may not have a lot spare cash to spare. This is why we’ve created our 99 credit reports for £99 package especially tailored for businesses that have just started up. This package helps you to protect your business by credit checking your customers and suppliers so you know the people you’re working with are financially stable. Click here to find out more.