First and foremost, you must do proper market research. Regardless of the industry you are entering, or the amount of experience you may or may not have, nothing beats proper analysis.
Your best starting point would most likely be your prospective competitors.
Companies house – Draw up a list of the top 5 competitors in your industry and take a look at their end of year accounts for 2 – 3 years trading history. You can do this for free here. Once you have the raw data, you will get a perspective on how much the market you are entering is worth.
Web traffic – If the business has a strong online presence (like most companies these days), it would be also worth checking out each domains traffic and keyword rankings. This will give you an insight into the types of phrases companies like you are trying to target. These are also known as ‘money terms’ because they are the search terms entered into sites like Google that drive traffic and sales. You can analyse how competitive these search terms are, as specific markets may require a huge CPC (cost per click) investment or significant SEO commitment to even get close to ranking for certain search terms.
Have a look at any advertising these competitors are doing, look at their content marketing, social profiles and traditional marketing methods such as TV and Print. This may give you free insight into your typical customer.
So, the biggest cost to most businesses are their direct staffing costs (basic salaries, commission, sick pay, National Insurance Contributions plus all the insurances and requirements that come with being a boss)
Do you actually need additional help at the start? Could you do most of the work yourself and retain a larger proportion of the profit? Have you considered options away from permanent employees? Modern businesses offer commission only or contract roles. These, are sometimes great alternatives to committing the business to long term staffing costs.
The next biggest spend (depending on industry of course) is business premises. Are you in an industry that requires a shop front? How much of your business would rely on ‘walk-in’ trade?
Do you do most of your business online? If the latter is the case you could consider a lock-up of garage facilities rather than jumping into a significant rental agreement. Many momtrepreneurs sell essential baby products online with just a small amount of garage space, costing less than £300 per month. In comparison, most high street rental terms are at least 3-5 years, with modest units costs at least £10,000 per month depending on location – so do ask yourself if you really need to spend all that money.
There are a number of costs which are often forgotten when pricing up an entry into business. Costs such as the various protection policies you may need soon add up. If you are in any type of advisory role, such as a financial advisor, you will almost certainly need professional indemnity cover. If you have any contact with the public, you will also need to do some research into public liability. Some insurance costs can’t be avoided, so make sure you compare your insurance policies regular, you may need to be prepared to change insurer to get the best deal.
Depending on the legal status of the business, you will be able to balance your profit margin by claiming back some of your business costs.
Business mileage – depending on the reason of the journey, you are able to claim back up to 45p per mile for business usage. In any one tax year, you can claim up to 10,000 miles at 45p each. Anything above this is then claimed at 40p per mile. So for example, if you cover 250 miles per week you will rack up an annual total of around 13,000 miles annually – this equates to £5700 available to claim back against your profit margin.
Usage of your home facilities – if you dedicate a room to work, share the broadband or phone line you may be entitles to claim back some of your rent/digital services against your end of year accounts.
Family assistance – if your partner or family member helps you deliver your services, consider paying them a wage. They work for you, they are also entitled to tax-free income each year. Do speak to your financial adviser for up-to-date advice on the above.
At the end of the day, the best thing you can do is get advice from people who have been through this process. Surround yourself with successful business owners. Go to business networking events, speak to people in your local area and get specific advice, they will have made mistakes and learnt from them, so get some tips that could help you get ahead in the most crucial first year of trading.