Set up costs when starting a business

To give your business the best chance of success, it’s important to start with a clear idea of the costs involved, both to establish the business and start trading, and then to keep it running.

What are you getting into?

Your business start-up costs will vary depending on whether you’re starting from scratch, taking over an existing business, buying a franchise, or have specific industry related costs. So, what are some of the basic things you may need to consider, no matter which of these is the case?

1. Do your research

Three ways that may help you establish a ballpark figure of how much money you need to begin your business are:

 

1. Put together a business plan and consider making an appointment with an accountant or financial adviser. They should be able to give you an overview of what your set up costs may be for the first 12 months.
2. Talk to people who are running similar ventures about what costs you might expect. Industry associations can also be a good source of information, as are online forums where people may already be sharing relevant information.
3. Consider attending a presentation or completing a workshop on developing a business plan. Search for events online as they can provide useful hints, tips and tools on how to get your business started.

2. Factor in costs

Every business will have different set up requirements. This checklist will help you understand some of the costs you may need to factor in.

 

3. Manage your expenses

It might be good idea to split your costs between ongoing and one-off costs. It can also help if you overestimate costs, so there are no major surprises later in the year.

 

One-off costs should include everything necessary to get the business ready for trading on day one.

 

For managing ongoing costs, you should consider developing a cash flow forecast/budget. This will give you a sense of when money is both flowing in and out of your business over the coming 12 months.

4. Identify break-even

Break-even is the point at which you cover all of your costs. What you need to understand is how your costs behave in relation to your sales. Some of your costs will increase as your sales increase. These are your variable costs. Other costs will remain constant over a range of sales. These are your fixed costs.

 

Once you know your break-even point, you can more accurately plan how many sales you need to achieve in order to start making a profit. This will be of great assistance when you are planning your business set up costs. Remember to be realistic in your cash flow planning and allow some space in your calculations for unforeseen expenses.

5. Consider finance

You may need to borrow money to launch your new business, to buy stock, purchase vehicles and equipment, or cover fit-out costs.

 

A business overdraft or unsecured business overdraft could help with financing initial set-up costs and trading through the period it takes to achieve break-even. You might also consider a business loan or unsecured business loan¹.

 

Explore your options, the costs and conditions with your bank; and check in with your accountant if necessary. 

 

Next steps: Watch the Getting Started in Business webinars

This webinar is produced by the Davidson Institute, Westpac's home of free financial education resources, building confidence today for a better financial future.