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Have a brilliant biz idea but worried about the start-up costs for a business? Here’s what you need to budget for

It can be challenging working out how to start a small business in Australia – and one of the biggest barriers is understanding if you can even afford to. In this blog, we’re diving into the question “How much does it cost to start a business?” to help you understand what you need to budget for, and how to keep start-up costs for a business minimal.

Before you can answer whether you can afford the start-up costs for a business, you first need a clear idea of your vision for your business. What product or service do you want to offer? What do you want to achieve financially in the short term and long term? It’s important to be realistic here, especially in the short term. Creating a business plan will help you be strategic and to refine your essential and optional business start-up costs.

Here’s some starter questions to help you work out if you can afford the start-up costs for a business:

Three questions to ask yourself first (and answer them honestly!):

  1. How much money do you need to maintain your lifestyle and personal financial obligations? Make sure you’ve created a comprehensive personal budget, don’t just guess this one! We’ve created a complete guide to budgeting if you need help getting started.
  2. What is your current financial situation? Are you already in debt, or do you have significant assets (cash or shares) that could be leveraged to start your business? Is your credit report healthy enough that a lender would consider you for a business loan? Some small businesses can be started without a loan or outside investment of course, but depending on the industry, it may be an unavoidable undertaking.

(Repeat after us: I will avoid taking on any additional debt that isn’t absolutely necessary and I will seek financial advice before doing so)

  1. Do you have enough money saved for your personal expenses AND an emergency fund? If your business is one you’d be starting in lieu of other employment, you want savings to cover your personal expenses (or your share of them) for at least six months, and ideally for a year.
    Bear in mind that it can take a while for a new small business to get off the ground and become profitable, so you can’t rely on making a regular salary straight away. It’s always a good idea to have a separate emergency fund put aside for unexpected events (vet bills/flooded house/medical expenses, etc).

If you don’t have that money saved yet, a budget will give you a benchmark monthly savings goal to aim for. We’ve got lots of tips for how you can boost your savings here, here and here. Or, one of our personal budgeting experts can help you customise a budget to save for your entrepreneurial goals.

Now, if you answered yes to question 3, or aren’t planning on giving up your day job just yet, congratulations! You can move onto calculating whether you can afford the actual-bills-that-need-to-be-paid start-up costs for a business.

The actual start-up costs for a business: The beginning

How much does it cost to start a business? Business start-up costs vary wildly depending on the industry and nature of your business: obviously, a bricks and mortar shop selling a range of products will have significantly different start-up costs than an online store drop-shipping t-shirts.

Similarly, if you’re hoping to build a side hustle that will help cover the costs of private school fees but plan to keep your day job, it’s possible to start a small business with minimal start-up costs – it’s all about priorities, keeping your end-goal in mind, and building the foundations for a financially viable small biz.

Of course, if you’re going into business with other people, it’s important that everyone’s transparent about their financial situation and goals and that there’s an agreement in place about who’s responsible for what when it comes to business start-up costs.

Here are the various start-up expenses to consider when creating a budget to start a business:

  • The official start-up stuff: Registering a business name, fees associated with the business structure you choose, getting all the licences and permits you need, trademarks/patents, domain names/email hosting, membership fees, franchise fees (or even the business purchase price!)… Plus of course, the fees for accountants and solicitors to help you with some of the above.
  • Insurance policies: Depending on the sort of biz you’re starting, you may need insurance for building and contents, vehicle, workers compensation, business assets, and importantly, public, professional and product liability.
  • Bricks & mortar costs: If you’re moving into a physical premises, your budget to start a business should include rental lease cost (including a deposit), utility, phone and internet connections, and your shop fitout and signage expenses
  • Other expenses: This is one where you need to be realistic about what is essential and what is optional, and this will vary significantly depending on your business plan. Think about your tech needs, training, wages, stock or raw materials, stationery and printing, vehicles, office furniture and website/marketing expenses

Here’s a useful template to help you calculate the start-up costs for a business. Keep in mind that these are just the start-up costs. Many of the things you’re budgeting for here become ongoing expenses, which we’re going to cover next, because it’s a critical part of working out if you can afford the start-up costs for a business.

A man in a denim shirt, a man in a check shirt & a woman in a white shirt posed in a modern office - Start-up costs for a business

The actual start-up costs for a business: ongoing expenses

Not to harp on about it but remember, your business probably isn’t going to be an overnight success story. If it is, seriously kudos to you! But the reality of starting a small business likely means months of hard grind before you’re grinning all the way to the bank.

This isn’t a reason to not start a business, it’s just something you need to budget for and factor into your decision making. While you might not be able to do a full cash flow projection for your business, you can anticipate the ongoing expenses you’ll have in your first year.

Consider the rent, internet, phone, utilities and tech costs you’ll have (including accounting and other software subscriptions), as well as ongoing expenses for fresh stock/raw materials. Your operating costs aren’t going to go away just because you haven’t built up a steady flow of customers yet, particularly if you need to have perishable or seasonal stock. (Do your research on what the cost of your utilities may be rather than making a guess, as business electricity tends to be more expensive than residential.)

Don’t forget your budget to start a business should also include any ongoing accounting/legal services you’ll need, and the annual costs of registrations and insurance. Ideally, you want to have the cash to cover the operating costs of running your business for a year. This isn’t a hard and fast rule but it will make your new business venture a lot less risky and help you avoid falling into debt if trade’s slower than you hope at first.

If this is your first foray into being self-employed, remember you’ll need to pay your own superannuation, and put money aside for tax and potentially register for GST. Don’t make the mistake of thinking that all money coming into your business is profit for you to spend. Remember all those ongoing expenses?

Strategies for starting a small business on a budget

If the reality of the start-up costs for a business have surprised you, don’t worry, we have good news too! There are so many ways you can minimise your business start-up costs. Here’s our top tips:

Lower your business start-up costs by starting small

Can you start your biz as a small side hustle and keep your day job (or go part time) while you test the viability and interest in your business offering? If you’re starting an online shop, how about starting a small range of products that will minimise your production costs.

Lower your business start-up costs by choosing your location carefully

Rather than taking out a lease on an office, could you work from a co-working space? Not only is this cheaper than renting (plus membership often includes internet and basic office furniture, which will significantly cut down your operating costs), you won’t have to commit to anything long term.

If you’re planning to open a bricks & mortar business, be smart about the location. It may be appealing to be in the heart of the city, but consider whether you can find your customers elsewhere, such as in an up-and-coming suburb. Rent will probably be cheaper, and your business can (hopefully) grow as the neighbourhood does!

Many shopping centres and even councils offer pop-up shop options for a cheaper way to test your business idea and see how it resonates with your target audience before you commit to a lease.

A man with black hair & beard wearing a high-viz vest typing on a laptop in a warehouse with pallets of boxes - Start-up costs for a business

Lower your business start-up costs by looking for business grants

Did you know that councils, state and even the federal government offer grants for new businesses? Do your research and reach out to your local business associations for advice, as you may be eligible for assistance. A good place to start is this business grants and programs finder.

Lower your business start-up costs by being ruthless about what’s essential

Yes, it’s very tempting to want all the bells and whistles for your new business. Branding and customer experience is very important, but things like fancy office supplies and a designer desk, not so much. Yes, certain business expenses might be tax deductible, but if you’re spending unnecessarily, that’s probably not a smart business move.

Importantly, make sure you keep track of all your expenses and stay on top of your accounting from the very beginning. You won’t be able to make claims if you didn’t keep your receipts, and those costs can quickly add up. If you’re not confident with the financial side of running a business, make sure you find yourself a good bookkeeper and accountant.

Lower your business start-up costs by doing things yourself

From your shop fitout to your marketing, there’s a lot of ways to cut costs with some DIY. Canva is a great tool for creating professional marketing assets with templates for everything from social media to business cards to newsletters/brochures. Social media is a low-cost way to start building an audience for your business. Get yourself a cheap ring light and start sharing valuable content (and your enthusiasm!) with the world. If your new premises is a bit tired, head down to Bunnings and pick up some paint and recruit some friends to help you out rather than paying a professional – if your landlord allows it.

Need to supercharge your savings so you can cover the start-up costs of a business?

If you want to start a business, start saving for it. Our expert team can help you understand your personal finances and even create a customised personal budget template for you, so that you can afford the start-up costs of a business sooner. While we can’t budget for business expenses, we can assist in helping you save for your dream business and keeping your personal finances in check, so contact us today to take the first step towards making your entrepreneurial dreams a reality.

We hope you’re feeling more confident about how to start a small business in Australia and all the business start-up costs involved. For more helpful advice like this, subscribe to our newsletter for budgeting tips, career advice and everything you need to know about healthy money management habits.

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This article has been prepared for information purposes only, and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.

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