While online shopping has really taken off in the last decade the overwhelming majority of Australians still make their purchases in a physical store.
Indeed, according to the most recent Australian Retail Report, which KPMG conducted for Ayden, the financial technology company in 2023, almost 40% of existing businesses plan to open at least one new retail outlet in the next 12 months. So, it would appear to be a terrific time to launch a brick-and-mortar store yourself.
However, if this is something you are in mind to do, especially if it will be your first shop, you should be mindful that it is not a cheap undertaking. Research from Shopify has found that the average business spends around $40,000 in their first year of trading – a significant amount to outlay.
While not all of these costs will be applicable to your business, we’ve put together this list of 15 business startup costs you might have to account for. If you factor them into your business planning prior to opening, you should find yourself navigating the tricky waters of retail that much more smoothly.
Here we breakdown our 15 common business startup costs to consider:
1. Business entity and licences
Choosing a business entity is an important step when setting up your brick-and-mortar store as it has both financial and tax implications. However, doing this does come with startup costs for business, especially if you utilise the services of a legal professional.
For start-ups, registering your business with ASIC is something you have to pay for and depending on your business structure you may have to outlay other costs on a regular basis too.
In addition, you might need licences that are trade-specific, especially if you are offering a service, while other permits might also be required for specific products like alcohol, weapons or dangerous goods.
2. Retail/office space
For many new businesses, renting or buying a retail or office space will represent a significant amount of their set up costs.
When looking for somewhere to base your brick-and-mortar store remember the old adage ‘location, location, location’. So, try to find a site that benefits from heavy foot traffic and has lots of easy-to-walk-from parking in the surrounding area.
Once you have identified such a site, make sure it has enough room to display your products in a visually impactful way and allows customers to browse them comfortably. Also, minimise ‘dead’ space as you don’t want to fork out significant amounts for square footage that has no meaningful purpose when it comes to generating revenue.
3. Equipment
Pretty much every new business will need specific equipment to help them trade efficiently and effectively. This could include everything from display cabinets, chairs, EFTPOS machines, computers, vehicles or production machinery. Most startup businesses will require finance to purchase the equipment as apart of starting their business, as such its important to work with a specialist vehicle and equipment finance broker that can obtain the most suitable financing option for you business.
What you will need, of course, will be contingent upon the industry you are in and your business size, and whether you buy them outright or lease them is a decision you will have to make in the best interests of your business.
However, you can reduce the costs for some of the items by purchasing them second hand and not overpaying for extra functionality in specific items you don’t really need.
 4. Stock
For brick-and-mortar start-ups operating in the distribution, manufacturing, retail or wholesale sectors, it’s a fair bet that you will need to purchase stock before you open your doors. The trick is knowing how much to buy. Often businesses utilise a business overdraft when purchasing stock as it does not impact the capital they’re currently holding to alleviate potential cashflow concerns.Â
As a business there is always risk in the amount of inventory you have on your hands at any one time. If you carry too much, you risk the stock being damaged, spoiling or just going out of favour. Conversely, if you have too little, potential customers might opt to purchase the product online or from one of your local competitors. If your business is seasonal, this is something that can be particularly tough to get a handle on.
If you keep track of what you sell, you will soon be able to establish what your most popular products are. However, when just starting out, a good rule of thumb is to set aside around 15% to 25% of your overall budget for the product, depending on your mark-up.
5. Staff
Unless you are operating a one-man band or are a mom-and-pop type store, you will need to hire staff. Depending on how big your brick-and-mortar start up is you might need to employ several people, which could end up being a significant cost.
When forecasting this expense to your business, it is important to factor in things like net pay, commissions, bonuses, superannuation responsibilities, paid holidays and overtime, as appropriate.
You must also be aware that your employees will need to be paid from the day they join your company. For this reason, you might initially want to hire freelancers and temp workers to keep costs down and provide your business with the flexibility to have less people on your payroll during quieter periods.
We have written a recent blog on how to get a business loan.
6. Insurance
An often overlooked, but very necessary cost for brick-and-mortar start-ups is business insurance. If you are not properly covered your business could suffer crippling or terminal damage. Imagine the effect of hazardous chemicals accidents that you left in an open space that can cause harm to your employees and customers instead of placing them in secured and safe chemical storage cabinets.
In Australia, all businesses are required to have Workers’ Compensation insurance if you hire people. Likewise, if you drive a motor vehicle for working purposes you will need to have Third party personal injury insurance. It is also prudent to have public liability, property and loss of income insurance.
At the end of the day while it might involve a sizable upfront cost, it can save you thousands in the long run.
7. Utilities
The price of utilities is something else many business owners fail to account for. Aspects like electricity, water and gas can all be critical to the successful running of your brick-and-mortar store. Additionally, the cost of air-conditioning, heating, phone and internet can all be significant too.
Depending on the size of your shop or office space the fees and charges for these utilities can quickly add up. So, make sure you account for them in your budget to avoid your running costs from spiralling.
8. Marketing
If your brick-and-mortar store is a start-up you are going to have to get the word out there. For a new business this can be costly as it involves developing a brand logo, signage, banners and possibly even business cards.
On top of this you may also choose to fund advertising, either through TV, radio and traditional media, or social media platforms like Facebook and Instagram. If you run your own social media accounts, you might want to pay content creators to devise something that will get you noticed and hopefully go viral. Alternatively, you may even want to engage the services of a PR company.
The good news is there are plenty of ways to promote your business for free. However, if you want your marketing activities to make a bigger impact more quickly, you will need to pay for it. Generally speaking, 10-15% of your total spend should be allocated to marketing.
9. Website
Websites are essential for most brick-and-mortar businesses across all industries. Not only does it provide them with another sales channel, but it also enables them to get their brand noticed, receive feedback about their products and service and raises their credibility.
Unless you have the capability in-house, you will need to fund the creation of your website. You will also have to pay for the domain name and the on-going hosting of the site, while other elements such as SSL certificate and domain privacy should also be considered. You can also use software to help build you business. For example, an NDIS business can use this NDIS CRM.
10. Accountants
Every business in Australia will have to file a tax return on an annual basis. While you can do it yourself, it can be confusing and time-consuming. For this reason, you should consider hiring an accountant.
A good, qualified accountancy firm will take a lot of the stress away from you of preparing your tax return, in turn freeing up your time to run your business. They also will also have a detailed knowledge of the entitlements and mandatory requirements of the taxation system, which will ensure your return receives as many tax-cuts and benefits as possible and, most importantly, complies to government regulations.
When hiring an accountant, don’t just pick the cheapest. Instead, do your research and find out which one has a reputation for serving their clients the best.
11. Tax
Hopefully your accountant will make sure you pay as little tax as possible. However, if your business makes more than $75k a year ($150k if you are non-profit) you will need to pay GST.
Depending on your business structure you might have to pay company tax. To help you forecast how much you will be required to fork out and for what, you should talk to your accountant and budget accordingly.
12. Shipping
If you are selling products online, as well as in your brick-and-mortar store, or offer remote delivery to customers for bulky purchases they can’t easily carry out of your establishment, then you are going to have to factor in the cost of shipping.
Unfortunately, in a country as big as Australia, you might find yourself having to send orders to remote destinations, the cost of which can quickly add up to tens of thousands of dollars. Make sure this is something you account for and to reduce costs, try to find the cheapest, yet most effective shipping and delivery solutions you can.
13. Business consultants
Running a business is tough and sometimes you might need some help or advice on how best to proceed. In such circumstances it is a good idea to hire a business consultant who can provide you with the benefit of their experience without the emotional attachment you might have.
Although they come at a cost, it might be a good idea to engage their services just before you open your doors. That way, they can help you hit the ground running and avoid some of the common mistakes many small, and in particular new, business owners often make.
14. Travel
Depending on your business, you may need to travel to source new suppliers, attend industry events or set up meetings with corporate clients. This could be locally, out-of-state or abroad – all of which would incur costs.
If you can, try to anticipate how much travel you will do throughout the year and to where, ideally booking as far in advance of the date as you possibly can. This might not always be possible, so it is worth having a set budget for travel, which you can adjust up or down, depending on how your business is trading.
15. Training or education
If you are hiring staff or you are not familiar with certain aspects of running a business, you might need to pay for them to be trained, or perhaps formally taught at an institute of higher learning.
As a business owner you are responsible for the professional development of your staff. It is also within your interests to ensure they have the skills and knowledge to help your operation function as efficiently and effectively as possible.
Luckily, there are often tax breaks associated with doing this, which your accountant can advise you of.
Understanding business startup costs with Inovayt
When navigating the complexities of business startup costs, consulting with Inovayt proves invaluable. Their expertise in finance can streamline the process, offering tailored solutions to manage expenses efficiently. Whether it’s securing initial capital, devising budgeting strategies, or optimizing financial resources, Inovayt provides comprehensive guidance. By engaging with their professionals, entrepreneurs gain access to insights that mitigate risks and maximize returns, fostering a solid foundation for long-term success in the competitive business landscape.
