E3 Start-up and Running Costs
Start-up Costs
Start-up Costs are expenses that a business incurs before it opens. As these costs are paid before the business is generating income, they need to be covered by other sources of finance. Examples include, market research, legal fees for registrations, equipment, advertising, initial rent and initial inventory.
Managing startup costs is essential for the survival of a business as it may take some time after opening for business before enough revenue is generated to cover costs. It is estimated that 70% - 80% of startups fail within the first two years with the most common reason being running out of money. Strategies startup businesses could employ to manage their startup costs effectively include;
Researching potential costs and setting a budget
Stick to the budget and avoid overspending
Prioritising essential expenditure
Establishing a contingency plan
Table 1
Start-up Costs for The Coffee Hub
| Item | Cost (£) |
|---|---|
| Initial Rent of Premises | 5,000 |
| Shop Conversion Costs | 25,000 |
| Coffee Machines | 8,000 |
| Cash Register | 2,000 |
| Refrigerators/Display Units/Dishwasher | 12,000 |
| Furniture & Crockery | 7,000 |
| Initial Stock (Raw Materials) | 10,000 |
| Licenses and Permits | 5,000 |
| Marketing and Branding Setup | 4,000 |
| Miscellaneous Expenses | 5,000 |
| Total Startup Costs | 83,000 |
Running Costs
Running Costs are the ongoing and regular expenses necessary for a business to conduct it's operations. The revenue of a business should cover all running costs. These include rent, salaries and wages, marketing expenses and replenishment of stock.
Managing running costs is important to maintain the financial health of a business. The money leftover from revenue after all expenses are paid meaning that the management of running costs is essential to profitability. It is essential to manage liquidity to ensure that a business can meet their financial obligations. Overspending on running costs can lead to a liquidity crisis.
Understanding these costs helps future coffee shop owners plan their finances better and ensure they have enough money to start and maintain their business.
Table 2
Running Costs for The Coffee Hub
| Item | Annual Cost (£) |
|---|---|
| Restocking Raw Materials | 240,000 |
| Wages | 120,000 |
| Utilities | 8,000 |
| Business Rates | 5,000 |
| Accountant Fee | 3,000 |
| Rent of Premises | 60,000 |
| Advertising | 10,500 |
| Insurance | 4,000 |
| Maintenance | 10,000 |
| Miscellaneous | 30,000 |
| Total Running Costs | 490,500 |
