To start a business there are 3 things you need: money, time and the right mindset. Focusing on money, how much do you actually need to set up and start an online business? This is a question I get asked a lot and if you ask Google, you’ll get a wildly ranging number. After a quick search I’ve seen one website claim that the average business owner spends ~£40,000 in their first year; if I had to spend £40,000 in my first year, my business would never have gone further than the piece of paper my business idea was written on!
Using my experience (including real costs), I will clarify how much it costs to start an online business.
Let’s go!
When I started out on my business journey, I had an idea and that was it. I didn’t know much else. This naivety is common amongst aspiring/new business owners and unfortunately there are a few people out there that capitalise on it. They charge for services that business owners could easily do themself (or actually don’t need at this stage unknown to the business owner) and often charge excessively for any service they do provide. These businesses are killing small businesses; the number one reason businesses fail is because they run out of money.
I’ll start with a personal example….
My online business idea was a tech platform that connected service providers with people looking for their service. I didn’t have a computer science/coding background and I had no idea how to build my website or how much it would cost to get it built for me. What I did have was a degree in mechanical engineering that taught me how to problem solve and research. I began researching. After some research on how to build a website I decided the best approach would be to create a website design specification (a document that outlines the features you want from your website) and then approach web design agencies to get some quotes. What happened next was eye watering and dream destroying. I received a quote in excess of £250,000 to build my website. To top it off, at the same time I was also speaking with branding agencies to help me brand my business; I received a quote of £15,000 to just brand my business. These numbers were bonkers and completely unaffordable for me.
Most people don’t have in excess of a quarter of a million to start a business. Even if you do have this kind of money available, you should never be spending this much to start an online business. It is important to keep your business expenditure to a minimum until you have proof of concept. Only once you’ve achieved this is it worth investing in paid services such as a branding agency or more complex website features. After all, what is the point in having a singing all dancing website and swanky brand image if you have no business?
I didn’t have a quarter of a million to start a business but I didn’t let these quotes stop me in my pursuit to start my tech platform. I found another way. I ended up starting my online business in 2020 for less than £5,000 and in hindsight, I could have probably done it for even less. Here is how…
Once you’ve decided on your business idea, the first thing you need to do is write a business plan. There are businesses out there that will write a business plan for you but you should be writing this yourself! Don’t pay someone else to write your business plan, they don’t have your vision or your ideas.
When I sat down to write my first business plan I didn’t know where to start or what to include. After a lot of research and taking on board the comments of various business incubators & investors, I have learned a lot about how to write a business plan. To help you write yours and save you time, I written my learnings down and created a business plan guide. This guide highlights what to include in each section of your business plan and helps you complete each section. It also contains a business plan template, an example one page business plan template and a financial forecast modelling tool!
The cost of this step can range from £0.00 if you do it all yourself to £69.00 with the help of my guide.
It can be tempting to pay a branding agency to help you name your business and create your brand image. This is the road I initially went down until I reached a toll asking for £15,000. I didn’t have £15,000 and even if I did, I couldn’t justify spending this much money so decided to name and brand my business myself.
It turns out you don’t need to pay a branding agency to name and brand your business, you can learn how to do this yourself! I researched everything I could find about naming and branding a business (including best practices and mistakes to avoid) and successfully named and branded my business. I have recorded these learnings in my business naming guide and business branding guide to save you from spending the time researching.
The cost of this step can range from £0.00 if you do it all yourself to £74.00 with the help of my both my business naming guide and branding guide.
The cost of registering your business depends on the business structure you choose and the location you’re based. Typically, registering as a sole trader/proprietorship is free. Registering as a limited company has a cost; in the UK this is £12. There are company formation agencies out there that make a living by charging excessive fees to register your company on your behalf. You don’t need to pay for this service. Registering a company is simple and something you can 100% do yourself!
The cost of this step should range from £0.00 to register as a sole trader to £12.00 to register as a limited company in the UK. You should not be paying for a company formation service.
You’ll need to register a domain to have a website and get a professional email address. The cost of registering a domain can vary; it depends on whether the domain is already taken and how popular the domain name is. I have never paid more than £10 a year for a domain; usually it is more like £1.99! It is also possible to get a domain for free. However, these look less professional as they also include the business name of the domain provider. I wouldn’t advise you to do this but it is an option.
The cost of this step can range from £0.00 (using a free domain) to ~£12.50 per year for a custom domain.
A professional email address (one that uses your own domain name e.g @thesmallbusinesstoolbox.co.uk instead of the domain of the email host provider e.g @gmail.com) is not expensive. You can set up a professional email address with a Google Workspace account for £5 per month! You can even get 10% off the 1st year of your annual plan if you drop me an email to lawrence@thesmallbusinesstoolbox.co.uk.
The cost of a professional email address is free with a Google Workspace account which will only cost you £5.00 per month (£60 per year) plus you get all the benefits of having a Google Workspace account, such as a Google Business Profile!
Only businesses registered as a limited company are legally required to have their own business bank account. However, it is often helpful to have one regardless as it can help separate your personal finances from your business finances. A business bank account doesn’t need to cost your business a penny. For example, you can set up a business bank account with Starling for free.
The cost of setting up a business bank account is free. However, it is important to check any other fees these banking providers charge. For example, some banks charge a fee to deposit cash and cheques.
Most businesses have to comply with data protection regulations. As part of your data protection compliance you may need to register with a supervisory body responsible for enforcing any data protection regulations in the location you process privacy information. For example, businesses registered in the UK that collect privacy information off of people also based in the UK have a legal responsibility to be registered with the Information Commissioner’s Office (ICO). This registration is £40 per year.
The cost of data protection compliance could range from £0.00 (in the unlikely event you don’t have to comply with any data protection regulations) to £40.00 per year if you need to register with a supervisory body such as the ICO.
Most businesses will require a privacy policy and should have a set of terms & conditions. Whether you’re legally required to have them or not, it is good practice to have these documents but you don’t need to pay excessive legal fees to get them created. You can write your own policies such as a privacy policy and your own terms & conditions saving yourself a lot of money! If you want some reassurance, once you’ve drafted your documents you can get a legal professional to look over them; this is what I did.
The cost of getting a privacy policy written and a set of terms and conditions can range from £0.00 if you do it all yourself to ~£500.00 if you draft them yourself and just get a legal professional to review them.
Depending on the business you want to start, you may be required to get additional industry specific licences. These typically come with an annual payment. Most businesses don’t require any additional industry specific licences.
The cost of any industry specific licences can range from £0.00 (as it was in my case) to perhaps a couple of hundred pounds.
For most small online businesses insurance isn’t a legal requirement unless they employ people (you’re probably not at this stage yet). Regardless of whether you need it or not, it is best practice to have insurance that meets your business’ needs. As a minimum I would recommend you have professional liability insurance and public liability insurance. These are the two insurance covers I have for my business and it costs me just under £50 per month.
The cost of this step can range from £0.00 if you choose not to have insurance cover to ~£50.00 per month (£600 per year). The cost will vary depending on the cover you choose.
You need to keep financial records as soon as you start your business but that doesn’t mean you need to pay for some expensive fancy bookkeeping software. A simple spreadsheet will do the job! If spreadsheets aren’t your jam, to help you get started with your bookkeeping I have created a bookkeeping tool; this is a Google Sheet which has some clever programming built into the back of it allowing you to add business transactions at the click of a button.
Bookkeeping can cost you nothing if you build a spreadsheet your self. Alternatively, you can pay a one off fee of £53.00 using my bespoke bookkeeping tool or a reoccurring subscription of ~£10 per month (£120 per year) using online bookkeeping software.
This is where things can get expensive, where most people spend more than they need to and where I could have saved myself the most money in hindsight. Remember my quote of £250,000? This quote was more or less accurate to build a website with all the features outlined in my website design specification but it turns out I didn’t need them all. Not to launch my business and prove my concept. The web developer I approached failed to mention this.
Fortunately, in my pursuit to get a cheaper quote I streamlined the specification and what was left was a minimum viable product (MVP) of my website. I then worked with a website developer and managed to replicate approximately 70% of the functionality I required from a custom built web app using WordPress and various different plugins for a fraction of the price I was originally quoted.
In hindsight, I would change two things: I would have streamlined my MVP even further and if I had known how easy it is to build a website, I wouldn’t have worked with a web developer. I now build all my websites myself.
If you require a website, only build a website with the minimum functionality you need to get your business started and prove your concept. You do not need to launch your business with a custom built website! It is also more than possible to save yourself excessive web development costs by building a website yourself, especially if you’re only looking to create an e-commerce store, marketplace or business/portfolio/personal site. You can teach yourself using tutorials on YouTube.
In my business start up guide, I outline the steps you need to take to create a website yourself, starting at the design processes all the way to building it. In this guide, I share the tips and tools I use to build my own websites.
The price of a website can range wildly depending on what you require from it. If you only require a static website (one that doesn’t have continuously changing user generate content) such as a personal blog, business page or portfolio etc you could use Google Sites for free. Alternatively, if you require an online store you can build a site using Shopify for £25 per month (£300 per year). In my business start up guide I share a tip on how you can build an online store completely for free!
These are the costs you’ll incur to set up and start your business. Based on these numbers, the best case set up cost is £0.00 and the worst case cost is ~£1750. Both are miles away from the £250,000 I was quoted just for my website! Obviously, if you’re selling physical products you will also have to budget for the cost associated with acquiring these goods.
There is a common misconception that starting a business is unaffordable. It doesn’t need to break the bank! To help aspiring business owners set up and start their business, saving them both time and money, I have created a series of guides sharing my learnings and tips, helping you complete many of the above steps yourself! You can view these guides here and save yourself even more money buy purchasing the “Business Start Up Kit” which gives you all by business start up guides and tools!
Once you’ve set up your business you will then have to account for ongoing running costs such as marketing expenses. This is another blog for another time. However, just to give you an idea of marketing expenses I currently don’t spend any more than £5 a day marketing The Small Business Toolbox; almost the same amount as a coffee from a coffee shop.
If you have any questions about the cost of setting up and starting your business or questions about my guides, just get in touch!
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