Pass 4 – Financial Aspects Produce a list of your start-up and running costs Produce and explain the start-up budget which includes details of the predicted costs and revenues

Start-Up Costs When a business launches a new product or service, they need to budget for start-up and running costs. They will need to estimate these costs in advance, to decide whether or not the product or service will be profitable. Start-up costs are one-off costs paid before a new business is set up. Running costs are the costs involved once the service has been launched, in order for it to continue. These are payable for as long as the service is available.

Examples of start-up costs new buildings for businesses, or extensions to accommodate expanding ones new machinery, vehicles or equipment (including installation and delivery costs) researching the target market for the new business initial advertising for the new business initial stock for the new business initial (first premium) payment towards insurance costs incurred through staff recruitment and training. Examples of start-up costs include:

Examples of running costs Examples of running costs include: rent wages/salaries maintenance loan repayments interest on loans communications (telephone, Internet, etc) mortgage repayments advertising stock equipment stationery insurance payments utilities (electricity, gas, water, etc) travel expenses (petrol, MOT, insurance, etc).

Start-up or running costs?

Deep Fried Fred’s Deep Fried Fred’s have set a maximum budget of £490,500 to cover start-up costs. The premises they originally had in mind for their new shop cost £410,000. The bigger premises are priced at £460,000. The spreadsheet they have set up allows Deep Fried Fred’s to see quickly and easily the effect on the total start-up costs of buying the larger premises. It also allows them to assess where they might cut costs in order to keep within budget. How might Deep Fried Fred’s buy the larger premises whilst keeping within their budget?

My Start-Up Costs Start-up StockI will have to buy …£1,000 - £5,000 Property RentI will be renting my property in … (name the street and town). I will have to make a “down payment”. £1,000 – £2,000 EquipmentI will have to buy fixtures and fittings such as … £4,000 – £8,000 AdvertisingI will need to inform local people that my …… shop is opening £500 – £1,500 Decoration of new shop I will need to decorate the interior£800 – £2,000 Any other costsI need some spare money available for unforeseen payments £500 – £2,000 TOTAL START-UP COSTS BUDGETED AMOUNT Are you under or over your budget?

My Running Costs StockI will have to top up my stock each month depending on demand. I intend to spend £….. Each month £100 - £750 Property RentI will be renting my property in … (name the street and town). I will have to make monthly/weekly payments of £…. £ UtilitiesEach month I will need to pay for Gas, Electric and Water. £ AdvertisingEach month I will need to spend an amount on advertising to tell people about my products and services. £50 – £500 CommunicationI will have to pay for a phone line and an internet connection. £20 – £60 InsuranceI need to pay a monthly amount to cover my insurance for my business. £50 – £150 TOTAL RUNNING COSTS

What can go wrong? Sometimes initial estimates can be inaccurate, which often results in the final costs for a project being much higher than originally predicted. There are a number of reasons for this: the original estimates were incorrect the decision-making process took a long time, and/or general delays in the process increased the overall cost inflation increased the overall cost the business did not properly monitor their costs.

Reducing my start up budget option BenefitsDrawbacks Spend less on stock by finding a cheaper supplier Can still buy stock but at a cheaper price Cheap stock might be of a worse quality and therefore customers might not be happy with product and might not come back therefore lose customers and money Spend less on rent by finding a cheaper property This is a big expense as it is a running cost as well as a start up cost therefore reducing the property cost will have a big impact on costs The property might not be in as good a location so people won’t come = no money, might not be big enough therefore can’t store enough products therefore customers can’t buy what they want and wont come back= no money Spending less on decorations Could easily do it yourself and easily find cheaper suppliers of paint etc If you do it yourself might look tacky therefore customers might not come = no money. If you use poor quality materials they might not last as long therefore you have to redo it costing you more money Spending less on equipment Could easily find a cheaper supplier or buy second hand Might look tacky therefore your business might get a bad reputation and people won’t come = no money Spend less on advertising Could use cheaper methods that could be just as effective e.g. having black and white leaflets rather than colour The method might not be as effective = fewer customers = less income

Pass / Merit Write up your report under your start-up and running cost tables. What can go wrong with your budget? Are you over or under budget? How can you save money? How does doing a start up budget help you with your business planning? What will you do if you have a high unexpected cost? –Loan or Overdraft?