Business Start-Up Costs New Entrepreneurs Need to Know

The idea of starting a business is often relegated to wishful thinking by detractors. It is considered an unimaginable feat that only a superhuman can accomplish. However, this is far from the truth. Entrepreneurs who build a business from scratch are common people like us, with the zeal to make it big. They relentlessly work towards the goal of setting up a company that is capable of generating considerable profits.

Founders create the business plan for their idea and collect funds to get started. The only hurdle is that they must calculate the costs correctly to avoid deficits or a lack of resources. Thus, every entrepreneur must know the business start-up costs in New Zealand to ensure they have sufficient funds for successful launch and initial operations. An idea of accurate expenses helps to create an effective budget and allocate capital carefully without wastage.

How to find out the Business Start-Up Costs?

Starting-up is a big responsibility that must be taken up after a thorough assessment. New entrepreneurs must evaluate their financial condition and ability to secure funds before taking the big step. Ideally, they should have adequate reserves if they plan to use bootstrapping to fund the business in the initial years. Conversely, if they plan to take out a loan, they must have a good credit score, an excellent business plan and a viable product.

Entrepreneurs can also opt for government grants and pitch the idea to angel investors and venture capitalists. However, they need to know the exact loan amount before seeking financing to get established in the marketplace. The costs vary for every business, depending on its size, industry and structure. Let us help you with a checklist of the typical costs that must become a part of the financial plan.

1. Cost of Renting or Buying Commercial Property

Whether you acquire an existing business for sale in New Zealand or launch a start-up, you will need a physical office for your staff, stock storage and equipment. Thus, you must add the cost of commercial lease ($478 per sqm in Auckland, $370 per sqm in Christchurch and $388 per sqm in Wellington), fit-out ($300 to $1,000 per sqm), furniture, utilities, insurance, council rates and maintenance to your list of expenses. If you are buying or leasing an old structure, you may also have to consider renovation. You can eliminate this cost if you initially plan to work from home or have an e-commerce business that does not require an office.

2. The Expense of Conducting Market Research

Market analysis is a prerequisite for start-ups to determine the feasibility of the investment. You will have to hire a research team to understand the demographics and psychographics of the target audience, competitors’ products and their marketing strategies and the customers’ buying behaviour. Market research is necessary to create the business plan and devise the pricing, distribution and marketing strategy. Thus, the cost of hiring quality research analysts ($20,000 - $30,000) must be included in the final start-up budget.

3. Business Equipment and IT Tools Expense

Business needs machines and people to operate. Therefore, the founder must check if they can afford the equipment. If the machinery is too expensive, they can lease it to reduce the costs. For example, entrepreneurs can rent computers, printers, photocopiers, coffee machines, etc., to maintain operations.

In addition to hardware, they must buy software and invest in creating a business website ($1000 to $10,000 or more). The company's digital presence cannot be ignored, and the website can help acquire customers and increase brand visibility. Similarly, entrepreneurs require various tools to create an organised business, such as accounting software ($11 - $18 per month) and project management software. These costs must be added to the equipment and tools category.

4. Permits, Licences and Compliance Costs

After the business plan has been written and the office space is finalised, the business owner needs to determine the name and structure of the entity. The registration cost depends on the start-up structure ($60 for sole traders and partnerships). Also, you must acquire the New Zealand Business Number and comply with tax regulations and industry laws.

Licences are required by specific businesses, such as an outdoor dining licence for starting a restaurant. Service-providing businesses like legal consultants and accounting firms must acquire a professional licence. It ensures that you are complying with the legal regulations.

5. Marketing and Advertising Expenses

Start-ups must be marketed aggressively to create brand awareness, educate the target audience about the vision and mission, evoke interest in the products and influence them to purchase. Thus, new entrepreneurs must use a 360-degree marketing and advertising approach, including TV, radio, print and outdoor ads.

Besides these, they must create a social media fan following, invest in search engine optimisation and drive traffic to the website. In addition, they should prepare marketing collaterals for in-store branding. It is better to outsource these tasks to freelancers to keep the costs within the estimated budget. If you are buying a business for sale in New Zealand, you must know that the average marketing budget is close to 5% to 10% of the revenue.

6. Salaries and Stock for the Business

Every business needs inventory and has to pay salaries and wages to the employees. These inevitable ongoing expenses take away a significant share of the working capital. The minimum wage in New Zealand is $22.70 per hour, while the starting-out wages are $18.16 per hour.

Similarly, businesses must maintain a regular stock supply that needs to be stored and managed efficiently. Finding reliable suppliers with good quality and affordable products is vital to maintain the required stock levels.

7. Additional Start-up Costs

Start-ups need to take out various insurance based on the nature of their business, such as public liability, professional indemnity, employer's liability, cyber liability, management liability etc. They must also consider tax bills and payment for professional services like lawyer's fees, accountant's fees, web hosting services, etc.

In addition, they need to have some reserve capital for unexpected costs that can create problems. Cash flow forecasting and financial projections help prepare an effective start-up budget that includes all the fixed and variable costs.

Wrapping Up

Building a business needs a lot of effort and financial support. Calculating all the costs in advance is vital to accumulate the required funds and working capital for smooth operations.