This article is intended to be read alongside LegalVision’s Startup Cost Template, which you can download here for free.

Starting a business requires a large investment of blood, sweat and tears. It also costs money to start a business. But how much money, exactly?

From our work with over a hundred thousand Australian businesses, we’ve learned that first-time entrepreneurs sometimes struggle to identify the essential costs required to get their business up and running. Without a firm grasp of the types of expenses you’ll incur, there’s no way to forecast how much money you’ll need to get started. 

This article will help you understand the costs of starting and operating a business in its first year. 

Every Business is Different

Many of the costs to start a business are common across all industries and business models. But some are unique to your context. This article focuses on the most common startup costs. However, it’s important to identify if your business will incur additional costs due to your specific circumstances. 

Will You Sell Physical Products?

Businesses that sell physical products face a unique set of challenges and costs. You’ll likely have higher capital costs, like for leasing equipment and premises.

You’ll also need to think about your inventory (the stock you intend to sell). You should have stock on hand to fulfil orders. That means you’ll need to pay to store the product and deliver it to customers. You may also have to borrow money to buy the stock before you’ve received payment from customers (this is called working capital), and this will attract interest expenses.

Will You Need Staff From Day One?

Most startups keep their teams lean in the first year. Often the founders are the only workers and they try to avoid paying themselves. Other businesses need staff from Day One.

You can engage workers in two ways – as employees or as contractors – you can read about the differences here. Some startups prefer to engage contractors rather than hire permanent employees in the early days. This allows them to complete essential startup projects with a more flexible workforce.

Cash-strapped startups that need employees should consider incentivising staff with an Employee Share Scheme. Under this arrangement, you give employees the right to gain part ownership of your business. This can help bridge the gap between a startup salary and a corporate salary.

Will you have premises?

The cliché of starting a business in Mum’s garage is romantic but unrealistic for most founders. More often, founders get started from a home office or living room. Working from home has its perks, but you need to be aware of the risks. Also, if you work from home, speak to your accountant about claiming a portion of your household bills as business expenses. 

Eventually, you will need a dedicated office, retail space or factory and storage facilities. The costs to fit out and rent these premises are significant and leases often have three to five-year terms. Startups should consider short-term, lower-cost alternatives like pop-up venues or co-working spaces.

Common Startup Costs

Even the leanest startups incur some expenses when establishing the basic infrastructure for their business. Startups face a huge amount of uncertainty, but it’s worthwhile spending the extra time to build strong legal, administrative and technological foundations. We’ve seen hundreds of businesses incur unnecessary costs when they have needed to change their business structure or technology (‘tech’) stack after 6-12 months. Better to get it right the first time.

Legal and Administrative

Legal and administrative costs range from the essential (like certain insurances) to the seemingly negligible (printing and stationary). It’s important to focus on the more important aspects (like protecting your intellectual property with a trade mark or patent) while still taking the time to provide a rough estimate for easily-ignorable costs (like travel expenses). 

From our experience, the most important decisions for a startup are those that are difficult or costly to change. With that in mind, here are some areas to focus on:

  • Name, logo and branding: customers will develop a relationship with your brand from the day you launch. Changing any of these will likely result in legal, design and government fees.
  • Business structure: most businesses operate as companies. Sometimes a dual company or trust structure is used to protect intellectual and other property. Changing your business structure will incur legal fees and may have tax implications if you need to transfer assets between entities. 
  • Insurances: Meeting regulatory requirements is an obvious focus for startups. Many industries require specific insurances in order to operate a business. Some insurances are common across industries. It can be prudent to engage an insurance broker.

Technology

Your tech stack is similar to your business structure – it can be disruptive if you need to change it. Also, the quality of your website and sales tools can have a big impact on your revenue.

Here are our top tips when it comes to buying or building basic technology:

  • Invest in your website: for many businesses, this is your first touchpoint with your customers. It’s also a resource for potential customers to learn about your business and your product. For some, it can be worthwhile to hire a developer to build a bespoke website – just remember to save some money as a contingency, in case the build takes longer than expected.
  • Be cautious of online tools: there are probably thousands of cloud-based software tools that could increase your productivity and cost between $10 and $100 a month. The costs quickly add up. Also, the benefits of these tools often increase the more you use them – so it’s better to choose a handful and learn how to use them properly.
  • Get fast internet: founders don’t have time to wait for a web page to load!

Sales and Marketing

Most startups will go to market in their first year, so you’ll need some basic marketing assets from the get-go. While you’re getting started, it’s important to focus on marketing strategies that can be deployed at low cost. Capturing email addresses on your website and marketing to your email list is a common and effective approach. Building a presence on social media platforms and relevant online (and offline) groups costs lots of time but little money.

Paid advertising is another valuable strategy, but one you should approach with caution. Digital ad costs can quickly snowball as you chase a ‘critical mass’ of customers. Make sure you manage your advertising budget with discipline. 

Finally, be aware of the hidden costs of selling. Founders typically spend a lot of their own time in sales meetings. This time won’t appear in your financial statements, but it’s a huge investment. Keeping accurate customer information in a spreadsheet or Customer Relationship Management tool can save you many hours. 

Funding Your Startup

Once you’ve calculated your startup costs, you’ll need to consider how to pay for them. At least some portion of your costs will need to be paid before you earn any revenue – so you’ll need to finance them in another way. Your options include borrowing money from a bank or alternative lender, raising equity capital, accessing government grants or using your personal savings. Learn more here.

Key Takeaways

Starting a business requires foresight and careful planning. It’s critical to forecast your startup costs and make informed decisions on key issues, so you can avoid the cost of switching in the future. Investing in quality expert advice (from accountants, lawyers, designers, developers, etc.) can help you avoid costs and hassle in the future.

If you need assistance with any legal requirements associated with your startup, LegalVision’s experienced startup lawyers can assist. Just call 1300 544 755 or complete the form on this page.

COVID-19 Business Survey
LegalVision is conducting a survey on the impact of COVID-19 for businesses across Australia. The survey takes 2 minutes to complete and all responses are anonymous. We would appreciate your input. Take the survey now.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. For just $199 per month, membership unlocks unlimited lawyer consultations, faster turnaround times, free legal templates and members-only discounts.

Learn more about LVConnect

Simon Baume
Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.
Our Awards
  • 2019 Top 25 Startups - LinkedIn 2019 Top 25 Startups - LinkedIn
  • 2019 NewLaw Firm of the Year - Australian Law Awards 2019 NewLaw Firm of the Year - Australian Law Awards
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer
Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at info@legalvision.com.au

View Privacy Policy