How much does it cost to start a business in the UK?

Published Friday 23 January 2026

Table of contents

• What is a start-up cost?
• Average startup costs in the UK
• What are the different types of start-up costs?
• How to calculate start-up costs
• Business registration and legal costs
• Things that affect start-up business costs
• How to reduce start-up costs
• Managing startup costs with smart financial tools
• FAQs on startup costs

Key takeaways

• Calculate your total startup costs using the formula: one-time costs + (recurring monthly costs × 3-6 months) to ensure you have adequate funding to cover expenses until your business becomes profitable.
• Prioritise essential expenses first (such as licences, basic equipment, and initial inventory) and delay non-essential purchases like premium furniture or advanced software until your business generates revenue.
• Research and compare pricing across suppliers, consider refurbished equipment, and choose scalable cloud-based software that starts with basic features and grows with your business to reduce upfront costs.
• Build a detailed budget to prevent overspending (which causes 60% of startup failures) and maintain a contingency fund of 10-20% of your total startup budget to cover unexpected expenses like equipment repairs or higher marketing costs.

What is a start-up cost?

Start-up costs are the initial expenses you need to launch your business. These costs determine whether your business idea is financially viable and help you secure the right amount of funding.

Understanding your start-up costs helps you:

• Assess viability: Know if your business idea can generate enough profit
• Secure funding: Present accurate numbers to lenders and investors
• Plan cash flow: Avoid running out of money in your first year

Average startup costs in the UK

The cost to start a business in the UK can vary widely. Your costs depend on your industry, location, and business model, so you need to work out a figure specific to your business. A freelance writer might start with less than £1,000, while a new restaurant could need tens of thousands.

Understanding the typical costs for your specific business type is the first step. This helps you create a realistic budget and secure the right amount of funding, such as a government-backed personal loan of up to £25,000, to get off the ground successfully.

What are the different types of start-up costs?

Business start-up expenses fall into three categories that help you plan your total funding needs. Each category serves a different purpose in your business launch and ongoing operations.

Initial start-up costs

Initial start-up costs are one-off expenses that legally and physically establish your business. These essential costs include:

• Legal setup: Business registration fees and incorporation costs
• Professional services: Legal fees and initial consultations
• Essential equipment: Machinery, computers, and core business tools
• Brand identity: Logo design, website development, and marketing materials

Ongoing costs

Ongoing costs are recurring monthly or annual expenses that keep your business running. These operational expenses continue throughout your business's life.

Essential ongoing costs include:

• Premises: Rent, utilities, and maintenance
• Protection: Business insurance and legal compliance
• People: Wages, salaries, and employee benefits
• Operations: Stock, supplies, and software subscriptions
• Growth: Marketing campaigns and finance costs

Unexpected costs

Unexpected costs are the unforeseen expenses that arise outside the business's forecasted budget, such as unexpected legal fees, a rise in loan interest rates, or equipment repairs.

You can't ignore these costs as they can cause serious cash flow problems if a business is not prepared; depending on your business structure, you could even be personally liable for any debts the business runs up. Some businesses set aside contingency funds as a buffer to cover these unexpected costs.

How to calculate start-up costs

Calculating your start-up costs gives you the exact funding amount needed to launch your business successfully. This four-step process helps you identify every expense and avoid cash flow problems.

Step 1: Identify your essential expenses

Essential expenses are the must-have costs to open your doors and serve your first customers. Missing any essential expense will leave you short on funding.

Focus on these core essentials:

• Production needs: Machinery, equipment, and initial inventory
• Legal requirements: Licences, permits, and registrations
• Customer acquisition: Basic marketing to attract your first sales

Skip non-essential purchases like premium furniture or advanced software. You can add these once your business generates revenue.

Step 2: Categorise your expenses

It's helpful to categorise expenses into key areas so you don't miss anything.

Here is an example category list:

• Office space and utilities: Rent, utilities, furniture
• Equipment and supplies: Computers, tools, office supplies, machinery
• Marketing and branding: Website, logo, advertising, business cards
• Legal and administrative: Operating licences, permits, legal fees
• Salaries and employee benefits: Initial payroll, contractor payments
• Product or service costs: Initial inventory, packaging

Step 3: Research and compare pricing

Money's tight when starting a business, so researching cost-effective pricing will stretch your budget further.

Take time to shop around for the best prices, and think about financing options that let you defer payments or spread them out over time. Tools that scale with the business can also reduce your upfront costs.

Costs vary widely depending on region (rents in major cities will be higher), industry (some industries require expensive specialised equipment), and business type (retail businesses will have higher inventory costs than service-based businesses).

Step 4: Total your start-up costs

When you've identified everything you need to launch and you've estimated all the costs, the final step is to add it all together. Use this formula to calculate your total start-up costs:

Total start-up costs = one-time costs + (recurring costs × 3–6 months)

For example, what if your one-time costs equal £30,000, and your recurring monthly costs are £5,000? Your start-up costs are:

• £30,000 + (£5,000 × 3) = £45,000 for a 3-month buffer
• Or: £30,000 + (£5,000 × 6) = £60,000 for a 6-month buffer

Make sure you have funds to cover 3–6 months of ongoing costs to tide your business over until it generates a profit.

There's no guarantee when that will be (our XSBI data shows a difficult economic climate for small businesses, with small business sales lagging behind overall GDP growth), but the longer a company can fund its recurring expenses, the less likely it'll run into cash-flow problems before it's profitable.

If you're in the UK and need help calculating your small business start-up costs, you'll find this free tool useful: How to calculate startup costs.

Business registration and legal costs

Making your business official comes with a few costs. If you set up as a limited company, you'll need to pay a registration fee to Companies House, which can be done online through their web incorporation service for a fee of £15. This is a small but essential expense.

Professional fees and services

Getting expert help from the start can save you time and money down the line. Many new businesses hire an accountant or bookkeeper to get their finances in order and ensure they are compliant with tax rules.

These fees are part of your startup budget. Think of them as an investment in peace of mind and having more time to focus on growing your business, not getting stuck on administrative tasks.

Things that affect start-up business costs

Average startup costs in the UK range from £1,000 for simple service businesses to £50,000+ for retail operations. Your actual costs depend on five key factors that can dramatically change your funding needs.

Your business type

Retail businesses

These businesses sell products directly to customers from a physical storefront.

Retail businesses will likely face higher rents (for a desirable location), utility bills, and storage costs.

For example, a clothing store must budget for a storefront lease, typically in a central location with lots of foot traffic. It then needs to fit out the store with appealing fixtures and lighting, and display lots of inventory in different sizes and styles.

Online businesses

Online businesses sell products or services to customers through digital platforms.

If you're starting an online business, specific costs like website hosting and e-commerce tools are key. Read more in our guide to starting an online business.

Although this typically means they have lower overheads than physical retail stores, they need to invest in a quality website, a secure online-payments platform and a digital marketing strategy to compensate for the lack of foot traffic. They may also need to lease a physical warehouse to store inventory.

Service-based businesses

Businesses that sell services rather than products often have smaller overheads as they don't need a fancy storefront or a large inventory, but will likely spend more on labour, equipment and software, and licensing or certification.

For example, an accountancy firm leases office space, buys fixtures and fittings (like desks and computers) and professional accounting software, and hires skilled employees and contractors.

Here's more information on the differences between online and bricks-and-mortar businesses.

Your location and industry

Major cities or rural areas?

Doing business in major cities (like London) typically brings higher rent, wage, and utility costs, as these areas are in high demand with a high cost of living.

But while rural areas tend to have lower rents and wages, you may face higher transport and logistics costs as rural locations are often less accessible and may be further away from your customers.

Niche industries

A business operating in a niche industry generally faces higher upfront costs because it needs specialised equipment, materials, and staff expertise.

For example, a company that makes medical devices needs bespoke machinery, expert-level employees, and materials or components that are difficult to source.

Legal requirements

Some industries, particularly regulated industries, require expensive certifications, permits, and licences that add substantially to upfront costs.

For example, a food and beverage business may need health and safety permits before it can legally trade.

Marketing and branding expenses

Brand identity

Building a strong brand identity is essential for any new business. It makes the business memorable and recognisable, and shapes customers' perceptions of it.

A new business needs to invest in designing a logo and creating a website. It also needs clear brand messaging, such as its value proposition, to differentiate it from the rest of the market.

Digital marketing

Digital marketing is the promotion of your business on social media, email, and search engines.

Digital marketing can increase the initial costs to start a business, but it also puts the product or service directly in front of its ideal customer, which could provide quick returns.

Some digital marketing methods, like social media and content creation (blogging), are budget-friendly ways for businesses to connect with customers. It's also quite easy to track the return on investment (ROI) and scale up profitable methods.

But while digital marketing methods are often cost effective, running entire campaigns can be expensive, especially in competitive industries.

Here's more practical advice on digital marketing for small businesses.

Required equipment and technology

Types of equipment

If the business needs specialised equipment, it'll probably cost more than easily accessible items.

For example, an accountancy firm needs computers, desks, and a printer or two. But a medical consultancy might need to buy specialised, bespoke equipment.

Smart technology

To lower your upfront costs, you might:

• invest in refurbished technology: pre-owned devices returned to their original condition
• choose cloud-based software that scales with the business; for example, by starting with a single-user licence and upgrading it as the company grows

Insurance and risk management

Insurance protects a business from risks and liabilities.

Types of business insurance

There are three main business insurance categories:

• Liability insurance: Covers customer claims related to accidents, injury, and property damage
• Workers' compensation: Supports employees injured on the job
• Property insurance: Covers damage to a business's physical assets, like buildings and machinery

Learn more about the types of business insurance.

Insurance requirements and costs can vary. They depend on factors like your industry, location, and the size of your business:

• Industry: Businesses in high-risk industries like construction need more comprehensive liability and workers' compensation coverage than a retail business
• Location: Businesses in urban areas with high foot traffic need more extensive liability insurance than those in rural areas
• Size of the business: Larger businesses with more staff, customers, and equipment need more expensive and comprehensive protection

How to reduce start-up costs

Reducing start-up costs keeps your business financially stable and extends your runway until profitability. Smart cost management can significantly reduce your funding needs, sometimes by as much as 30–50%, without compromising quality.

Apply these four cost-cutting strategies:

1. Build a budget

Building a budget prevents overspending that causes 60% of startup failures. A detailed budget shows exactly where every pound goes and keeps you financially disciplined.

Your budget delivers three key benefits:

• Spending control: Prevents costly impulse purchases
• Cash flow visibility: Shows when money runs out
• Investor confidence: Demonstrates financial planning skills

Here's more about budgeting and forecasting.

2. Prioritise essential expenses

To reduce the risk of cash flow problems, focus on the essential expenses at first (anything the business needs to operate, like licences, equipment, and inventory) and remember that you can usually claim back expenses made in the six months before your business officially started.

You can think about buying non-essentials and luxuries later on, once your business is up and running.

3. Choose scalable tools

Scalable software tools let you start with low-cost basics and upgrade as you grow, which helps keep your day-one costs down while you plan for the future.

Xero is cloud-based accounting software that grows with your business. For example, Xero's payroll features automate your pay runs to make the process quick and efficient. And as your business grows, add a third-party payroll app to meet your expanding needs.

4. Outsource wisely

Outsourcing tasks to skilled freelance accountants and bookkeepers helps keep start-up expenses down.

Ensure you haven't missed any expenses by using our starting a business checklist. Avoid paying full-time salaries by hiring professionals when you need to, so you can focus on your business and leave things like compliance and organising financial records to the specialists.

Here's how a bookkeeper can help your business. And if you give your bookkeeper (or accountant) access to Xero, you can work with them on your financial data at the same time.

Managing startup costs with smart financial tools

Managing startup costs becomes simple with the right financial tools. Smart accounting software helps you track every expense, monitor cash flow, and make data-driven decisions from day one.

Xero provides essential cost management features:

• Real-time tracking: See exactly where money goes as you spend it.
• Budget monitoring: Get alerts when you approach spending limits.
• Cash flow forecasting: Predict when you'll run short on funds.
• Professional reports: Share accurate financials with investors and lenders.

Ready to take control of your startup finances? Try Xero for free and see how easy financial management can be.

FAQs on startup costs

Here are answers to some common questions about the cost of starting a business.

What is the average cost of starting a business in the UK?

There's no official average, as costs vary so much. A service-based business working from home might start with a few hundred pounds, while a retail shop could require £20,000 or more for stock, rent, and fit-out. The key is to research costs for your specific industry.

Can I start a business with £1,000?

Yes, you can start a business with £1,000. Many successful businesses, especially online or service-based ones, begin with a small budget. You could start a freelance writing, graphic design, or consulting business with £1,000 by focusing on low-cost tools and marketing efforts.

What are the most common unexpected costs for a startup?

Common surprises include urgent equipment repairs, higher-than-expected shipping fees, or needing to spend more on marketing to attract your first customers. It's a good idea to have a contingency fund, typically 10-20% of your total startup budget, to cover these costs.