When you’re starting a business, costs can easily snowball and get out of control. That’s why it’s important to maintain a tight grip on your finances and watch out for common finance potholes.
To shed some light on startups costs, we’ve asked some of the country’s hottest startups and SMEs what they struggled with most when it comes to unexpected costs.
Hopefully, this blog can help you identify the financial challenges they’ve experienced and make plans for how you’ll deal with them if or when they arise.
Some folk say that if your idea is clever enough, it will sell itself. While this is true for one in a million, we don’t recommend you count on it.
Most businesses have to put in the graft and beg, borrow or steal publicity until their target demographic starts to pay attention.
As Eddie Cantor once said, it takes twenty years to make an overnight success so don’t found a business expecting to jump straight to the end.
Marcus Vlahovic, co-founder of Sustainabody said:
“We didn’t expect how much PR would cost or how wisely you have to spend your money to get effective PR. It can take a few tries.”
As a cash-strapped startup, you often have no choice but to do a lot of tasks in-house. You need to be able to do everything on your own because your budget usually doesn’t stretch to a whole PR team, design squad or sales force.
You will have to handle your own marketing and that means you have to be clever about where you prioritise and invest your resources.
Software and IT
In this digital age, software and software subscriptions will take a massive chunk out of your budget.
Here’s Maria Kondrat’yev, co-founder & COO of Sustainabody, on the surprise of software costs.
“There are a lot of subscriptions for SaaS companies that are immensely useful (if not required), but quite expensive.
Niche companies can charge hundreds a month for effective software platforms that you need for bootstrapping your startup a few months in.”
When you’re developing a company, you obviously need certain things to be able to build your service or product.
That said, you should be picky about the pieces of software you commit to. Don’t go overboard and think that you need everything at once.
Adam Gore, founder and CEO of Find Me a Gift also highlighted the importance of understanding the skill gap between you, and what you are trying to accomplish.
“In the early days of starting the business, one of the biggest unexpected costs I encountered was the cost of IT.
This is quite a common issue that many new business owners face, as it’s easy to think setting up your own website is simpler than it actually is, so therefore time and cost are frequently under-estimated!”
Time is your most valuable and expensive asset. You should determine the value of your own time and invest it wisely.
Say you are a founder and managing director of a startup that is taking off.
There comes a point where it is no longer justifiable for you to do everything you’ve been doing from day one. Tidying the break room, optimising Facebook ad campaigns and chasing up leads by phone — yes these things need done but not necessarily by you.
Your time is limited and you should ensure that you’re delegating responsibilities. The simplest advice is that you should only do the things that only you can do.
A lot of unexpected costs come from the bits and bobs that you never really think much about.
Andrew Dark, co-founder of Custom Planet, reveals how his costs spiralled when he moved the business out of his parent’s home.
“In our case it was things like insurance, electricity bills and other utilities that tripped us up. Another thing was general waste and recycling bins, which the council don’t supply to businesses.”
Who will buy the loo roll for the office? What about stationery? Or the cleaning stuff?
Yes, they’re all small expenses but they add up to a substantial amount of money.
End of year tax
Year end account and taxation is a big worry for businesses up and down the country. It also has the potential to spring a nasty financial surprise on unsuspecting businesses.
Andrew Dark explains how corporation tax provided a nasty surprise his his young company.
“You need to watch out for corporation tax at the end of the year. Your dividend isn’t going to look anywhere near as good once the Revenue take their share.
We always make sure we put some extra money away in a savings account in the good months to make sure we can cover any unexpected bills and the dreaded corporation tax bill without affecting our cash flow too much.”
Trademarks and growth
If you don’t protect your IP, a big company can swoop in, copy what you’re doing and wipe you out in an afternoon.
We spoke to Julian Abel, managing director of no-nonsense food company Nowt Poncy, about how he protected his brand — and how much it cost them!
“If you have a great brand, trademark it. We thought the ® would be in two areas and it’s ended up in eleven.
There’s lawyers fees if you go down that route, and you should be prepared to defend your IP by sending cease and desist letters.”
Consider if things like patents, trademarks and copyrights are essentials for your company. If you think IP protections are necessary, know that they come with a price.
Changes in the environment
There are changes in the economic climate that we simply have no influence over. Rune Sovndahl, CEO and co- founder of Fantastic Services, experienced this first hand.
“A big surprise we got was the surge in flight costs. We have an insourcing company in Bulgaria, and when we started, flight tickets were as low as £30 for a one way ticket. It’s now closer to £200. With multiple trips every month and more staff needing to travel, the cost of travel quickly ramped up.”
If you are dealing with suppliers or customers across borders, you need to take the exchange rates into account as well.
“Since we started, the GBP had been slowly rising every year against the Euro, and with supplier costs in Euro we had a better purchasing power than the Euro.
After Brexit and the drop in the value of the GBP vs Euro, we have had to reconsider how we source our suppliers and our insourcing.”
Sometimes you can’t put a price on the right advisor says Rune Sovndahl.
“Having the right advice at the right time could be detrimental to the company, so we just had to do it.”
Expertise often comes at a price but the startup and support networks are growing exponentially!
With increased government support and networks where you can share your experiences, it’s becoming easier to cut costs as a newbie.
Any other unexpected costs?
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At Tax IQ we can help you out with a lot of the financial admin. Whether you need help with your self assessment, year end accounts, payroll & auto enrollment, VAT & online bookkeeping, tax planning or general business growth or all of the above, we’re standing by to help you! Contact us today, and let us take a load of your shoulders.