Business - Investing Time And Money (Guide)

Starting a business is an exciting venture. How much is it going to cost you to start the business you’ve dreamed of? You get to channel your talents and ingenuity to create an organization you believe in. But the process isn't simple. It requires time, dedication and money. Time equals money. So how much money do you need to start your business? 

The average UK start-up spends £22,756 in its first year. When taking into account incorporation costs, accountants’ fees, some legal costs, HR overheads and general administration. This does not include the money spent on business-specific activities, such as buying stock or developing a product. Statistically, the reason for business failure comes from living outside your business means, or having insufficient capital. 

This means you may have to go without some things in order for your business to succeed. Start-up founders mostly tend to underestimate costs by around £2,000.That is not to say that businesses cannot be started for less. Julie Deane, founder of bagmaker The Cambridge Satchel Company, famously began her business with just £600. 

The truth is that no business is the same and many micro-businesses can get started for as little as $3,000 or less. These businesses are often home-based sole proprietorships with low upfront investments. Another low-cost option is a franchise. While your average Main Street franchise may require a larger investment, home-based franchises can be started with as little as $1,000-$5,000.

The amount it costs to set up a business also varies depending on where you are. However, if you are organized and thorough, you can plan out your financing and keep your startup budget on track by starting small. You most likely have high expectations for your company. 

However, blind optimism may cause you to invest too much money too quickly. At the very beginning, it's smart to keep an open mind and prepare for issues that may arise. The best approach is to test your idea in a small, inexpensive way that gives you a good indication of whether customers need your product and how much they're willing to pay for it.


Calculating The Amount Of Cash You Will Need To Get Started 

One-Time Vs. Ongoing Costs: One-time expenses will be relevant mostly in the startup process, such as the expenses for incorporating the company. If there's a month when you must make a one-time equipment purchase, your money going out will likely be greater than the money coming in. 

This means your cash flow will be disrupted that month, and you will need to make up for it the following month. Ongoing costs, by contrast, are paid on a regular basis and include expenses such as utilities. These generally do not fluctuate as much from month to month.

Essential Vs. Optional Costs: Essential costs are expenses that are absolutely necessary for the company's growth and development. Optional purchases should be made only if the budget allows. If you have an optional and nonurgent cost, it may be best to wait until you have enough cash reserves for that purchase.

Fixed Vs. Variable Costs: Fixed expenses, such as rent, are consistent from month to month, whereas variable expenses depend on the direct sale of products or services. Fixed costs may eat up a high percentage of revenue in the early days, but as you scale up, their relative burden becomes negligible.

There are various types of expenses to consider when starting your business. It's important to differentiate these types of costs to properly manage your business's cash flow for the short and long term. When planning your costs, don't underestimate the expenses, and remember that they can rise as the business grows.

Expenses To Consider Before Opening:
  • Office space cost
  • Office equipment (phones, desks, chairs, Internet, computers, servers, etc)
  • Business licenses
  • Employee wages
  • Software (skip tracing, auto dialer, merchant account, letter fulfillment services, debt collection software)
  • Postage
  • Bank accounts
  • Legal council (for establishing contracts, business agreements, etc)
  • Taxes
  • Website and advertising

What Is Your Startup Cost?

Start-up costs are technically defined as the costs you’ll incur before you start making any income. It’s an important distinction to make because it will impact your tax return. These costs are broken down as follows:

Capital Expenditures - A reputable supplier can be a worthy ally to a startup. A vendor who is willing to take the time to help you understand your equipment needs may be just the person who deserves your business and your loyalty. You’ll also incur one-time costs to purchase assets such as inventory, property, vehicles, etc. These don’t typically qualify for a deduction, but can be written off through depreciation.

Operating Expenses - These are the costs involved in preparing to open a business and may include things like market research, the mileage costs involved in researching a location, advertising, training, wages, and any fees paid to professionals or consultants such as a lawyer or accountant.

If your sales skyrocket, you can deal with the happy problem of financing the supplies you need to fill a deluge of orders. However, it is often more helpful at the outset to make a pragmatic plan for the worst-case scenario. You need to know up front how you will weather a month — or two or three — with no sales. 

How much will it take to keep the doors open while you build your brand recognition? Document it all, including whether you will have employees and what kind of space you will need, down to the cost of ink and paper for your office printer.

When you’re just starting, the simple answer is: as much as you can get! Cash is king and the more cash you have, the more nimble and reactive you can be. However, at some point, you’ll need to invest that cash into current and long-term assets, employees, and marketing—all the tools of business you will use to make more cash later.

Depending on what your business is and how it’s structured, you will have different cash requirements. For example, if you are into buying and flipping houses, you’ll need to create a business budget that includes large pools of cash on hand so you can be ready to buy that perfect money-making property if and when it hits the market. 

On the other hand, if your company is predictable, and you know well in advance the kinds of purchases and payments you will need to make, you can keep more of your cash invested, so it’s earning money for your business.

You're probably going to have to give away more equity than you have to, or it's going to cost you way too much to borrow the money that you think you need, if you try to get financing, before you have one customer. You might be trying to bite off more than you have to if you don't get traction when you try to raise money. 

There can be huge benefit if you shrink a grandiose vision, and proceed with calculated baby steps, rather than try to go after too much on the first try. Even if enough money comes in to sustain your business, you may choose to forgo paying yourself during the startup phase. A clear working knowledge of your personal finances is vital at this stage of the business. 

What are your monthly expenses? A rule of thumb for wage earners is to have three months of personal living expenses in savings. For self-employed people, the common wisdom is to keep six months of living expenses in reserve. This is particularly crucial when starting a new business — and you may want to set aside as much as a year’s worth of cushion to give yourself a comfortable margin for your learning curve.

Because having an idea for a business is only a first step in the process. To turn the idea from a dream into a successful business venture, it requires time, energy, money. When it comes to capital expenditures a reputable supplier can be a worthy ally to a startup, offering experience gathered from years of working with businesses similar to yours.

 Be prepared to make multiple calls and to ask a lot of questions. A vendor who is willing to take the time to help you understand your equipment needs may be just the person who deserves your business and your loyalty. Resellers who deal in equipment for offices, restaurants, and other businesses may be able to put together a deal for you that will take a chunk off your startup costs if you negotiate well with them.


The first step towards estimating your start-up costs is determining your capital costs. These are simply any one-off costs that are essential to opening for business.

Common Capital Costs Include:
  • Purchase of buildings or land.
  • Permits, licenses, or other compliance costs.
  • Machinery.
  • Vehicles.
  • Shop fittings, furniture, decorating costs.
  • Signage, branding.
  • A website, domain name, and server space (for an Internet-based business).
  • Intellectual property registration.

Fixed Costs

Your fixed costs are expenses that you need to pay regardless of the amount of sales you make, products you produce, or how busy you are. They tend to be time-related, such as monthly charge, and are often referred to as overhead costs. Fixed costs include:
  • Wages, salaries.
  • Power and utilities – such as Internet, phone etc.
  • Rent, or mortgage repayments.

Variable Costs

Your variable costs, like the name implies, are costs that vary based on your business output. These costs may be based on seasonality (such as produce), or dependent on volume purchased (retail stock). Common variable costs include:
  • Raw Materials
  • Production materials.
  • Stock orders.

It’s generally a good idea to be conservative (i.e. overstate rather than understate) with your estimates. At the end of your estimates, consider adding 20% for costs you haven’t thought of in addition to cost overruns. You might be surprised at how quickly unforeseen costs add up.

Based on your anticipated costs (capital, fixed and variable), the next step is to cash flow forecast for the first twelve months of being in business Thus, simply document the projected income and outgoings of your business for the first year.

Your cash flow forecast should list all the payments and expenditure you expect for the given period, the cash surplus or deficit left over after income and outgoings are accounted for, plus your business’s account balance at the beginning and the end of the period. This could be tricky to predict, but the easiest way is to estimate demand for your product or service based on any market research completed to-date. 

You can put in costs according to quotes you have received from potential suppliers. Cash flow forecasts are typically presented as a spread sheet document, but an increasing amount of business owners use business accounting software to further automate the calculations subtotalling all their categories of income and outgoings. It’s always a good idea to consult an accountant to ensure greater accuracy.


Remember, a cash flow forecast is only as valuable as the information and detail put into it. Next, what have you got in the bank? You’ll need this money to support your business in its start-up phase and pay-off necessary business and personal expenses such as payroll, rent, utilities, etc. until the business is self-sustaining.

Using a spreadsheet, create a list of the start-up expenses and capital expenditures that you expect to incur, alongside the assets that you have. Try to assign costs to each expense, even if it’s a best guess.

If you are planning to start a business, it is critical to determine your budgetary needs. Since every business is different, and has its own specific cash needs at different stages of development, there is no universal method for estimating your startup costs.

Some businesses can be started on a smaller budget, while others may require considerable investment in inventory or equipment. Additional considerations may include the cost to acquire or renovate a building or the purchase of long-term equipment.

While identifying these costs, decide whether they are essential or optional. A realistic startup budget should only include those things that are necessary to start a business.

The most effective way to calculate your startup costs is to simply use a worksheet that lists both one-time and ongoing costs. It’s common to operate at a loss when you first start a business. You’ll need to make sure you have enough money in reserve to sustain yourself during this period. A cash flow forecast will help predict if you are financially prepared to start up.

When you write up your business plan, this should be one of the business factors you address. Where will your cash come from, and where does it flow to?

How long will you have to fund your business before it starts to make a profit?

Making revenue is not the same as making a profit. Profit is what you get to keep! Total up how many obligations you have and then project when you’ll be able to meet them.

How Much Time Will I Need To Invest?

The length of time it takes to start a business depends on the type of business, the complexity of the business, and the type of location. If you are starting a home-based business with just one person, no employees, no bank loan, no products (basically just you and a computer), you could probably get started in a month or two.

At the other end of the spectrum, a business that manufactures products in a large facility, with lots of employees might take up to a year to get started. In general though, if you need a location and can find one that doesn't need too much renovation, you can start a retail business or service business in less than six months.

The easiest answer to this question is … “As Much As It Takes!” While there is light at the end of the tunnel and not every day will have your nose to the grindstone, you need to be willing to invest your time into the business to begin with. If you manage your business correctly, put in the time and money, and have the knowledge and passion, you are well on your way to being successful.

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