Start-up Spending: Calculating the Cost of Setting up a Business in Australia

Starting a business involves more than renting an office and choosing furnishings. Whether you’re starting your own private company or a small sole trader business, it requires careful financial planning and accounting.

Fees go beyond registering your business and choosing a name. Depending on the type of business you’re starting, expenses may include licensing and paying for specialised equipment or software.

Whether you’re opening up a cafe or starting a wholesale gifts business, starting a business comes with a variety of costs, some of which you may not have considered. This article delves into all the expenses, so you can be better prepared for your business launch.

Why should you calculate the cost?

According to the Australian Bureau of Statistics, more than 60% of small businesses cease operations entirely within their first three years of trading. One of the most common reasons for this is due to finances—which is what calculating costs can help you avoid.

Calculating the cost of setting up a business is crucial for success. It’ll provide you with a realistic overview of finances to help you make informed decisions. A clear understanding of the expenses involved will also reduce the risk of running into financial strain.

When it comes to calculating the cost, speaking to an accountant is ideal—especially for anything larger than a sole trader business. Not only can accountants help you calculate expenses, but they can help with registering the business and taxes.

The exact cost will depend on the type of business and the field the start-up is in. For example, starting a business in tech will require different licenses and insurance than a hospitality business, influencing fees.

What are start-up costs?

The term ‘start-up costs’, as defined by the Australian Government, are the expenses you need to pay before your business generates income. It can include anything, from supplies and equipment to utility bills, and will vary from business to business. 

The first steps to calculating costs

Before you bring out the calculator and add up all the spending required—you’ll need to plan out your business. The first step is determining your business structure, whether you’ll need any employees, and researching the licensing/insurance required in your field.

The next step is understanding all the expenses involved in starting a business. Below, we’ve broken down start-up spending into categories, like marketing and inventory. Understanding these categories is the key to accurate financial planning.

• Business registration costs: Registering a business, obtaining an Australian Business Number (ABN) and registering a business name costs money. The exact cost will also vary by business structure.

• Renting an office: If your business requires a physical location, it’s important to factor in the costs of renting an office space, utilities for it, and insurance. Some businesses may be able to run out of your own home or be completely online, but others may require a physical storefront or office area.

• Equipment & supplies: Almost every business idea will require hiring or purchasing equipment of some sort. For example, if your business is farming-related, you’ll need agriculture tools. You’ll also need to consider the cost of inventory and supplies, like marketing materials and stationery.

• Marketing: A business is only as strong as its marketing. If you want to reach your target audience and grow your business, you’ll need to research and allocate funds for marketing and advertising.

• Technology & software: Every industry requires specialised technology or software. For example, in hospitality or retail, you’ll need an EFTPOS machine for taking payments.

• Insurance & licensing: Depending on your business, you’ll also need to look into insurance and licensing. For example, you might need public liability insurance or a license to sell specific products (e.g., alcohol).

During this stage, it’s also important to factor in whether your business will have employees or not. If your business requires employees, related costs will also need to be included in the start-up spending.

The costs of registering a business

Before anything else, the first expense you’ll run into when starting up a business will be when you officially register your business and business name. Below, we’ve outlined the differences in costs for a sole trader versus a company.

Sole trader

Compared to other business structures, the sole trader structure has relatively inexpensive start-up costs. Applying for an Australian Business Number is free, so the only cost associated with starting a sole trader business is registering a business name.

Business names (if applicable) are $44 for 1 year or $102 for 3 years. There are also optional, additional fees if you plan on having a separate business bank account and/or decide to register a .com.au domain for your business.

Company

Creating a company for your business has higher start-up costs and the process is more complex. While obtaining the Australian Business Number for your company is free, reserving a company name costs around $61.

Registering the company itself is also expensive, requiring a $597 one-time fee for a proprietary limited company. Similarly, there are also costs for registering the business name—$44 for 1 year or $102 for 3 years.

There are also ongoing fees for running a company, which you’ll have to factor into your start-up costs.

Determining start-up spending costs

It’s understandable if you find calculating start-up costs daunting. It can be overwhelming at first, but there are steps you can take to make determining start-up spending easier. Below, we’ve outlined our top tips and advice.

Do your research

Research is just as important as sitting down to calculate costs. Invest time researching the cost of products and tools for your business’s field. If your business requires a storefront or office space, check the rental prices in your surrounding area.

As part of your start-up costs, you should also consider your running costs. You want to make sure that you’re able to cover at least 6 months or more when you start your business.

Consult an expert

When in doubt, always seek professional help. Starting a business, especially for a complex business structure like a company, takes expertise. Don’t hesitate to seek assistance from an accountant or business advisor. They can help you identify costs and calculate expenses.

Setting your business up for success

Data has shown that companies with formalised financial planning processes are more likely to achieve revenue goals. If you want to put your business on the path to success and minimise risks, a detailed overview of your start-up spending is crucial.

Financial planning shouldn’t begin and end with start-up spending, either. Calculating costs should be integral to your business operations. Expense reports play a critical role in business forecasts, identifying areas for improvement, and mitigating risks.