How much does it cost to start a business?

Some people dream of setting up their own business, but long-term success can hinge on having enough funds. From initial registration to managing your taxes, the costs can soon add up. So how much do you need to start a business in the UK?

From small-scale online side hustles to equipment-heavy ventures, businesses come in all shapes and sizes. Cost estimates range from a few hundred pounds to tens of thousands, so there’s no single figure to aim for. While initial startup costs may be manageable for small businesses, more substantial investments may be needed to keep it profitable in the long run.

When it comes to how much to start a business in the UK, you’ll need to consider the money required to sustain the business as well as the initial outlay. A study from Hewlett-Packard found that the average UK startup spends £22,756 in its first year alone, but this won’t be applicable to every entrepreneur. Several factors play a role:

• How the business is structured and registered

• The industry and how much investment is required upfront

• Whether the business operates from a physical location or online

• How you expect the business to grow

• Salary expectations

Before launching a business in the UK, a common starting point is a basic business plan outlining the services or products and what it will take to become a reality. This is often a requirement for securing capital, such as a loan from a bank, but it can also provide clarity on the finances involved.

A business plan could answer questions such as: What will the business sell? How will it operate? What is needed to get it up and running? From there, the costs can be split into one-off expenses and the monthly costs of running a business in the UK (for example, rent and utility costs).

There’s no simple answer to ‘how much does it cost to start a business in the UK?’ However, it can help to look at some of the key expenses.

A new business may need to pay for office furniture, machinery, or specialist tools. Complex equipment may also mean extra costs for maintenance. Retail businesses will require point-of-sale systems and possibly renovations to the shop premises, while online businesses might factor in the cost of a laptop, software, or an online shop.

If you sell physical products, you might account for the cost of raw materials used in production (such as ingredients or construction materials). Buying in bulk can  sometimes be a way to save money, but not always.

The process of registering a business may vary depending on the structure you’ve selected:

• Sole traders are required to register for self-assessment with HMRC if they plan to earn more than £1,000 from their business. Registering for self-assessment is free.

• Limited companies are required to register with Companies House, which costs £50 if completed online or £71 using a paper form.

Depending on the nature of your business and its associated industry, you may also need specific licences or permits to operate legally. For example, businesses involving food preparation might require a specific business licence.

This can be one of the most significant ongoing costs of running a business. Business startups might operate from a retail unit, office space, co-working space, or a market stall. In 2024, the average rental cost for commercial property in England and Wales was £94 per square foot, but prime office space in London can reach as much as £160 per square foot.

Obtaining insurance, such as employers’ liability insurance, can help protect a startup from unexpected costs and legal claims. Business owners might be required to obtain coverage if they: 

• Interact with the public or clients

• Rely heavily on stock, equipment, or premises

• Handle customer data

Insurance might not be mandatory you’re a sole trader with no employees or regulated activities, but you should seek advice from the relevant bodies if you’re not sure.

Establishing an online presence can help potential customers find and engage with a new business. The cost of a website has been estimated at anything from £100 for a smaller site to upwards of £10,000 for a larger one that incorporates marketing and brand awareness activities.

Business owners can pick up digital skills online, with numerous free tutorials and courses available. There’s also the option of tools such as Canva to create designs and templates for boosting a company’s presence on social media.

Legal or accounting firm fees may also need to be factored into the costs of setting up a business. Limited companies may need to pay corporation tax, and potentially also VAT and PAYE, depending on the services offered and staffing levels. As a business grows, the taxation can become more complex. For higher earners, once income exceeds £100,000, a higher effective tax rate may apply to a portion of the income in a phenomenon known as the £100k tax trap. That’s why some rely on accounting companies to avoid any surprises.

Some entrepreneurs choose to save rather than apply for a loan or capital to fund a business. In addition to the fixed and recurring costs listed, a pot of savings could also factor in contingency spending, or an emergency fund, to cover unexpected costs or tide you over until the business starts bringing in money.

Savings might cover the initial business startup costs, but longer-term planning may be necessary. According to the Office for National Statistics, just under four in 10 businesses launched in 2018 were still operating in 2023*. You might factor in any hidden costs and risks that apply to your area of activity.

Whether £10,000 is enough, and how far it will go, depends on the type of business. For a small venture, such as an online shop or freelance service, it might cover the essential setup. Adding up the main fixed and variable costs can give a rough idea, but some people may prefer to consult with a professional to make sure everything is accounted for.

Building up personal savings before launching a business can help cover startup costs without relying entirely on borrowing. There are a few different ways to start planning financially.

Create a budget: Some people choose to continue in their day job and set up a business on the side, while others concentrate fully on the new business. Entering income and outgoings into a budget planner can help with planning and identifying a figure you can realistically put aside each month.

Choose a savings account: This might depend on your particular timeline: do you plan to launch your business in the coming year, or later? Comparing rates on savings accounts can help with deciding where to put your money. Some options include:

• Fixed rate bonds: With fixed rate bonds, you lock your money away for a term of typically between six months and five years and earn a competitive, fixed rate of interest.
• Notice accounts: With notice accounts, you’ll typically need to give 30 to 90 days’ notice before making a withdrawal. In return, you’ll earn a competitive, variable interest rate, without locking your money away for years.
• Easy access savings accounts: These offer flexibility and immediate access to your money while you build up your startup fund. Interest rates are variable (so they could go up or down), but you can deposit and withdraw funds at any time. This could be suitable for managing short-term expenses or maintaining a business emergency fund.

Explore business bank accounts: Some banks offer accounts with features designed to handle the everyday cash flow of a company. With a business savings account, it is possible to earn interest on funds set aside. When comparing providers, you might check for regulation under the Financial Conduct Authority (FCA) and make sure that deposits are protected under the Financial Services Compensation Scheme (FSCS).

Building your own business often starts with building up your savings. Whether you’re planning to launch your business in a few months or a few years, saving  money now can stand you in good stead when you’re ready to go. The Raisin UK marketplace brings together a wide range of deposit-protected savings accounts from trusted partner banks and building societies. It’s easy to get started by following our guide to how to use Raisin UK.

1. Register for your Raisin UK Account. You will need to provide some information about yourself, such as your name, address, date of birth, and National Insurance number. 

2. Compare the savings options available on our marketplace

3. Apply for your chosen savings account by transferring money from your Nominated Account to your Transaction Account.

*https://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/bulletins/businessdemography/2023#regional-five-year-survival-rates