SmallBizLaunchPad

Cost of Starting a Business

What does it cost to start a business? Well it depends on what kind smallbiz you’re launching.

Your initial outlay will depend on the size of your business and what it does, which legal structure suits you, what kind of marketing will best reach your target market, and which capital assets, like computers or equipment, you’ll need.

Some of the items below are optional, and can be deferred until your business is up and running. For example, many small businesses start out using an Excel spreadsheet for bookkeeping and upgrade to something more robust and fully featured once their business has proven itself.

Registrations with the Tax Office

The first thing every small business needs is an ABN. You may also need to apply for a TFN and register for GST or PAYG Withholding Tax. These can be done yourself mostly for free, but they are quite involved, with lots of legal complexities. If you’re not confident, your best bet is to have a professional register your business for you. Accountants fees vary greatly, but expect to pay between $200 and $400 for a sole trader business setup, and more for more complex entities. ‘Showing you the ropes’, such as bookkeeping, bank accounts, business plans and budgeting may be included or may cost extra, so be sure to ask up front. SmallBizLaunchPad can set up your smallbiz online from $220 depending on the business structure you need.

Legal Structure Setup

If you plan to trade in a company, trust, or combination of both, you’ll incur legal fees to set up these entities.

  • A company must have legal ‘rule book’ called a Constitution created by a lawyer, starting from $150. It must also pay a registration fee to ASIC of $457. Note that companies must also pay an annual ASIC fee, currently $243.
  • A trust requires a ‘Trust Deed’ prepared by a lawyer, starting at around $150. In some states you may also be required to pay stamp duty, which can be up to $500.

Business Name Registration

Unless you have a company, you’ll need to register your business name with ASIC to be allowed to trade under your brand name and protect your brand from being stolen by a competitor. Registration costs $34 per year, or $78 per 3 years. If you launch with SmallBizLaunchPad you’ll get 12 months registration included in your launch pack.

Employee Costs

To employ staff you’ll first need to register with the ATO for PAYG Withholding Tax, and set up a default super fund, both of which are free if you do them yourself. You may need to purchase Workcover Insurance, which varies greatly in price between states and depending on your workplace and number of employees. Don’t forget to budget for recruitment costs, uniforms, tools and health and safety requirements such as first aid kits.

Domain Names

You’ll need to purchase a domain name. Even if you won’t build a website right away, protect your brand and buy your domain name before someone else does. At the very minimum, we recommend you purchase the ‘.com’ and the ‘.com.au’ for your brand. Expect to pay around $15 – $30 per domain per year. We recommend Australian company Netregistry for their great reputation and excellent customer service.

Website Setup

This can vary greatly, depending on your needs and budget. If you consider yourself tech savvy, you may like to try building your own basic website for free using WordPress or Wix. To have someone build a site for you, a basic site with a few pages of photos and information should cost $500-$800. A complex website with an online store and other detailed features is likely to cost from $3,000 up to $6,000 or even more, depending on your web developer. You’ll incur additional maintenance costs every time you want to change or update your site. Hosting your website, so it can be accessed by the public, will add a few hundred dollars per year.

Insurance

These costs will vary depending on the nature of your business. Simple indemnity insurance for consultants working from home may start from a few hundred dollars, while tradespeople with high risk worksites may pay a few thousand. Some small low-risk businesses, such as those selling simple goods online, may choose not to take out insurance when just starting out. However if you have business premises that customers will be attending, are performing work or services where injury or human error is possible, or will have employees, we recommend taking insurance from day one. You can get quotes from major providers such as GIO, CGU or AAMI, or enlist the services of a business insurance broker

Merchant Account

In order to receive payments from customers, you may need to set up a merchant facility with your bank. Expect to pay a setup fee, monthly charges of $10 – $20, and possibly a percentage transaction fee as well.

Bookkeeping

 

Cloud

This is the best choice for all but the smallest of businesses. The market leaders are Xero and MYOB, and you’ll usually pay around $50-$60 per month. You can access your records from anywhere you have internet, and your accountant can log in to help you anytime you need it. A huge range of add-on products such as point-of-sale systems, inventory or timekeeping are available for an additional monthly charge.

Desktop

Software packages from MYOB and Quickbooks vary from $250 – $650 depending on your need for features such as invoicing, inventory and payroll. The downside here is that your records are trapped on the one computer you install the software on. Giving your records to your accountant is a painful exchange of files by email or USB stick. The up-front cost is also much higher, but depending on your needs and preferences desktop software may be cheaper in the long run.

Free

If you’re starting on a budget and don’t need payroll or inventory, you might like to start with a simple spreadsheet to record your income and expenses, and expand to more complex software as your business grows. This can add to your end of year accounting costs though, as spreadsheet figures require more work at your accountant’s end. Paying for software may be cheaper in the long run.

Licenses & Registrations

Depending on your industry, you may need to investigate council fees (such as safe food handling certificates), trade safety registrations, working with children checks, or other required minimum standards.

Marketing

Costs could include logo design, business cards, signage, printed advertising (check out Vistaprint for some good deals), listings in online or printed directories, online advertising such as google ads, memberships to relevant associations, fees for sales mediums (such as eBay, Etsy, etc), and website costs that we discussed earlier.

Stock & Equipment

Depending on what kind of business you’ll be running, this could include vehicles, machinery, computers, tools, cash registers, stock, materials, stationery or anything else you might need for the day to day running of your business.

Financing Costs

If you’ll require finance to purchase vehicles or equipment for your business, remember to budget for loan establishment fees (although sometimes these can be financed into your loan) and deposits. Also, some banks will require a letter from your accountant, or sometimes even projected financial statements or cashflow budgets, costing you more in professional fees.

Premises

If you plan to rent separate business premises, you’ll need to pay legal fees for the lease to be reviewed, as well as a bond and rent in advance. In fitting out the premises, you may need to pay for fixtures, shelving, furniture, signage, and staff amenities. There may also be costs for connecting utilities, phone, internet and other services.

Intellectual Property

If your business requires trademarks, patents or copyrights, be sure to do due diligence on these costs before starting out. IP professionals fees can go into the tens of thousands.

Working Capital

Finally, you’ll need some cash in the bank, to cover running costs, stock purchases, wages and bills, until sales increase enough to cover costs. If you sell on credit, you may need to replenish stock before you’ve been paid for previous jobs. Be sure to budget for a healthy safety margin too.

Case Study

So lets summarise with two quick case studies. Our first example is a minimum-outlay sole trader micro-business doing house cleaning. The second is a handyman who plans to register as a company, and will have two employees and an apprentice.

Cost typeSole TraderCostCompanyCost
TOTAL$1,160$8,510
RegistrationsABN & Business Name via SmallBizLaunchPad$220ABN, TFN, GST via SmallBizLaunchPad$270
Legal CostsN/a - Company Setup, Legal Fees, ASIC Fees$600
Employee CostsN/a - PAYG W Registration included in SBLP setup, costs for uniforms & tools$200
Workcover InsuranceN/a - Workcover $500
InsuranceVery small, low risk business, not required straight away - Basic business policy$500
Domain Names2 domains via NetRegistry$402 domains via NetRegistry$40
WebsiteSimple 1-page DIY on WordpressFree3 page basic website created by a local developer$550
Merchant AcctN/a, receive payments by cash or direct bank transfer - Used to take credit card payments on the spot from clients$200
BookkeepingSimple spreadsheetFreeXero$50/mth
MarketingLogo design, ads in local papers, letterbox drop$200Logo design, business cards, online tradeseeker service, ads in local paper, vehicle signage$600
EquipmentMaterials, equipment, stationery$400Tools, equipment, safety gear, stationery$2,000
Working CapitalMinimal required as materials are only main cost$300Cover wages, materials & ongoing advertising until profitable
$3,000

As you can see, the cost of starting a business can vary greatly. If you have a tight budget, consider investing gradually or ‘soft-launching’ before undertaking major capital expenditure. Perhaps start as a sole trader, sell on a smaller scale until your product has built a following, or operate just on weekends to begin with. This allows you to test the market, and make sure there is demand for your product before investing big money.

No matter which approach you take, SmallBizLaunchPad helps you launch your business on a budget while still having a professional take care of the technicalities.

What Next?

HowToStartABusiness-Cover

Thinking of starting a business?

How To Start A Business is your plain English guide written especially for small businesses, by Jess Murray, CPA accountant and small business expert. Choosing the right structure, how to register your business, GST, employees, bookkeeping and much more.

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