Business Costs

By Vicki Anstey, owner of Barreworks Studio and Founder of The Barre Collectivee 

Finance 101

One of the reasons many new small businesses fail in their first year is because they haven’t fully (and realistically) assessed the costs of running the business. Or worse, that they don’t interrogate every line (or cost centre) and understand what that business expense is. Glancing at your bank account every now and then is no way to manage your finances!

 

There is a myriad of ‘hidden costs’ that you really only get to grips with after establishing a trading history over a period of time - and that no-one really tells you about before you start out.

 

From utilities to PAYE/NI, to business rates and VAT, the difference between making a profit or a loss can be down to really understanding your numbers.

 

Here is a simple cashflow model you can use to work out a basic net profit picture. Some of these costs you may know or will be able to get hold of, others you may have to estimate. Do your research. Contact other local businesses of a similar size, talk to a friendly Accountant, but above all, BE REALISTIC. The biggest error you can make is to think that based on rent alone, a space is viable. If you have forgotten to add business rates and VAT, you may find that the cost of rent DOUBLES.

 

Even if you are freelance and you are hiring a space to work from, or operating online from home, make sure you have accurately calculated rental outgoings (whether on a PAYG basis or % of your takings) and also that you are aware of any tax relief for legitimate additional costs of working from home. This could include heating, metered water bills, home contents insurance, business calls, broadband connection, even a laptop, lighting or equipment.

 

Other costs that you may neglect to consider, or under-estimate the extent of are; music licensing, the monthly cost of maintaining a GDPR compliant CRM (customer relationship management) system (such as Mailchimp), the cost of a reliable booking system, plus any hidden charges for transactions.

 

There are some clever cost-saving hacks if you really shop around. Don’t just accept the first quote that you are presented with. See if you can negotiate, or at least obtain a second or third quote.

 

There is also great accounting software available such as Xero, Quickbooks, ReceiptBank and Expensify) that makes invoicing and expense management simpler and avoids a huge panic at year-end. Keep a track of all your business receipts AS YOU GO, so you’re not desperately searching for scraps of paper some months later.

 

Research government grants that may offer support to new businesses, or tax credits for R&D projects that you may be eligible for. You may even be able to offset some of the cost of rent by sub-letting to other practitioners (so long as your contract permits this!) but make sure this doesn’t create additional work, or expense in the long-run (such as cleaning, administration, damage or access) and beware false economies - make sure you really weigh up the benefits of outsourcing versus doing it yourself, for example, doing your own cleaning may save a little expense, but it may also take up valuable time that could be spent bringing revenue into the business.

 

If you would like further guidance on managing business costs or feel you would benefit from a mentoring session to comb through the detail, please get in touch.

 

Alternatively, you may find the following resources helpful.