SMEs underestimating the start up costs they face » SMEInsider

SMEs underestimating the start up costs they face

Small businesses are paying an average of £22,756 in admin costs during their first year of trading, new research has found.

According to online business service Geniac, typical costs include accountancy, company formation, HR and legal services. Unsurprisingly, London is the costliest destination to start a business, with admin costs reaching an average of £30k. Wales sits at the other end of the spectrum, with set up costs of only £8K.

A breakdown of the typical admin cost shows that company formation expenses form the biggest individual subset. The typical spend of £6,378 covers company set-up, drafting articles of association, board minutes and shareholdings, and accounts for 28% of the total.


Accountancy fees the most misunderstood

However, the area of most surprise -and where small businesses are consistently underestimating their costs – is accountancy fees. According to Geniac, those surveyed budget £1,723 less than the amount existing business owners actually incurred in their first year.

The research also shows that nearly two-thirds (64%) of small business owners say they get hit with unexpected costs, “The negative consequences of which include experiencing profit losses (23%); being forced to readjust growth targets (21%); and having to let staff go to free up funds (7%) – all factors that increase the likelihood of business failure.”

Mike Galvin, co-founder of Geniac, comments, “It’s concerning that startups and small businesses are not only losing  profits and staff but are readjusting growth plans because they’ve underestimated the cost of starting up. It’s even more worrying that they are over-paying in nearly every area of business administration – in nearly every part of the country.