The Cost Of Starting A Business
In the early stages, businesses have start-up costs that require careful financial planning. However, many new businesses neglect this process and end up with undesired results.
The cost of starting a business varies depending on the business model and chosen industry. Many small businesses, particularly freelance, online and home-based businesses costs a lot lower, than having a business that requires a physical premise and staff.
The first step to opening up any business is definitely creating a detailed business plan. With a business plan in place, it will be easier to identify the different start-up costs involved. Underestimating expenses will falsely increase your expected net profit, a situation that will not work well for your business. therefore, it is advisable to know how much it will cost to start a business.
All businesses are different, and can require different types of start-up costs. Online businesses have different needs than brick-and-mortars, and coffee shops have different requirements than a book stores. However, there are a few costs that are common to all business types:
1. Research expenses
Careful research of the industry and consumer market must be conducted before starting up any business. Do not blindly jump into it. You can talk to others that have started a similar business and do further research on the needs of your business. These are the cheaper options.
However, if you have doubts, you can choose to hire market research firms to aid you in the assessment process. Professional market research comes at a price – usually to the tune of RM2,000 for a basic research and may reach up to RM10,000 for a more in-depth one.
2. Borrowing costs
Starting up any kind of business requires an infusion of capital. For small businesses, the most likely source of financing is debt that comes in the form of a small business loan. Business owners can often get loans from banks or private investors such as family or friends. Business loans are definitely accompanied by interest payments. These payments must be planned for when starting a business, as the cost of default is very high.
Banks usually offer up to RM3,000,000 funding with an interest rate of approximately 7% with a 5-year tenure. If you borrow RM150,000 loan to start off your Malaysian-cuisine inspired café, your monthly repayment could reach up to RM3,537 (8.3%).
3. Compliance needs: Insurance, license and permit fees
All businesses would need to sort out some legal requirements before opening up. Food businesses generally would be expected to submit to health inspections authorisations before proceeding to apply for business licenses and permits. Some businesses might need to apply for industry-specific permits. However, on a general overview, a food and beverage business would incur the following costs:
- Business registration fees (RM60)
- Solicitor’s fees (RM3,000)
- Domain name registration (RM100)
- Insurance such as public liability, income protection, vehicles, etc. (a monthly premium of RM900)
- Licences and permits (RM150 for food license)
- Workers’ compensation
- Food handling certificates or serving of alcohol (RM150 for each = RM300)
It is important to note that the start-up costs for a sole proprietorship will differ from a partnership. Some additional costs that will be incurred by a partnership includes the legal cost of drafting a partnership agreements fees.
Businesses can function with or without a premise. If your business nature is online or freelance, you would not require a premise. However, if you need to operate your business in a proper premise, then you need to decide the most strategic location and if you want to lease, rent or buy the premise. Renting a shoplot in Publika for your café would cost RM6,000 monthly.
Other common costs relating to your business premises include architectural plan and basic premise modifications such as electrical, lighting, painting, security system, ventilation system, plumbing, etc. For a simple café renovation, you may want to allocate at least RM50,000.
5. Equipment and supplies
Every business requires some form of equipment and basic supplies. Once you have decided what you need based on your business nature, you also need to consider whether you want to lease or buy the equipment. This could largely be dependent on your financial capacity.
Items under this list includes furniture, such as tables, chairs, and cabinets, as well as stationery, and utilities like water, electricity, and phone lines. If you Require a delivery van, you will need to allocate cost to get and maintain company vehicles. Business-related equipment, such as large refrigerator and utensils may add up to the cost, too. You can consider getting the furniture from the factory or second-hand dealers at a lower cost. Do not forget to include safety and health items such as first aid kits, smoke alarms and fire extinguishers.
For a café, it would approximately cost this much:
6. Advertising and promotion
This is particularly important when you are starting your business new, as you need to have sufficient advertising and promotion to market your business in order to attract clients or customers. The public needs to be informed of the products or services you offer.
As a part of the business’ marketing needs, you need a logo (RM800), website (RM3,500), brochures (RM1,000 for 500 A2 double-sided brochures), business cards (RM40 for 3 boxes), signage (RM5,000), and advertise on yellow pages (RM3,000), newspapers (RM17,000 for full-colour ad), other related websites, etc. To get this started, you will require services of graphic designer and website developer, while including other costs, such as domain and hosting fees (RM300) for your website. All this could add up to about RM30,640.
7. Employee expenses
If running your business would require some help, then you need to hire people and they must be paid salary and offered other benefits, such as Employees Provident Fund (EPF), medical coverage, uniform, safety clothing. Also, remember to include recruiting costs such as job ads, that can cost about RM600 on job portal, and more if you advertise on newspaper
Failure to compensate employees adequately can end in low morale and high turnover, which can be a bad publicity to your business, and incurring additional training cost for new staff.
Let’s assume if you have five employees with an average salary of RM3,000:
In total, an employer of five staff needs to pay RM21,300 a year.
8. Technological expenses
Technology aids any business to function more effectively and sort out daily basic business functions. This category of expenses include hardware like computers, printers, scanners, modems, photostat machine, and software for accounting, security, documentation as well as cost of Internet, Wi-Fi, and mobile.
For your café, you can obtain phone and Wi-Fi services from UniFi for RM289 per month, a computerised cash register at RM3,000, and relevant software such as payroll at RM400, inventory and billing for RM700. In total, you are looking at about RM4,389 to set up your business on the technology side.
It is a good idea to split your costs between ongoing and one-off costs. It will also help if you overestimate costs, and include a buffer in your budget, so there are no major surprises later. One-off costs should include everything necessary to get the business ready to function on day one.
Therefore, to start up a café in the Klang Valley, in total you would require at least:
To manage ongoing costs, you should consider developing a cash flow forecast. This will give you a sense of when money will be flowing in and out of your business over the coming 12 months. Always stash away some cash for any overlooked or unexpected expenses.
Launching a new business can be an exciting experience. However, getting caught up in the excitement and neglecting the financial details can often lead to failure. The best would be to observe and consult with others who have travelled the road before – you never know where the best business advice will come from.
The above ballpark figures are just estimation based on rough quotations we received at the time of writing. Prices may vary based on requirement, location, and supplier/vendor.