Pass 4 – Financial
•Produce a list of your start-up and running
•Produce and explain the start-up budget
which includes details of the predicted costs
When a business launches a new product or service, they
need to budget for start-up and running costs. They will
need to estimate these costs in advance, to decide whether
or not the product or service will be profitable.
Start-up costs are one-off costs paid before a new
business is set up.
Running costs are the costs
involved once the service has
been launched, in order for it to
continue. These are payable for as
long as the service is available.
Examples of start-up
Examples of start-up costs include:
new buildings for businesses,
or extensions to accommodate
new machinery, vehicles or
equipment (including installation and delivery costs)
researching the target market for the new business
initial advertising for the new business
initial stock for the new business
initial (first premium) payment towards insurance
costs incurred through staff recruitment and training.
Examples of running
Examples of running costs include:
loan repayments stationery
interest on loans insurance payments
(telephone, Internet, etc) (electricity, gas, water, etc)
mortgage repayments travel expenses
(petrol, MOT, insurance, etc).
Start-up or running costs?
Deep Fried Fred’s
Deep Fried Fred’s have
Premises 410,000 set a maximum budget of
Cash registers (x3) 600
Brand new delivery vans (x3)
£490,500 to cover start-up
Refurbishment of shop 9,500 costs. The premises they
Initial stock 500
Initial advertising 2,000 originally had in mind for
Fryers for cooking (x3) 9,600 their new shop cost
Total start-up costs 469,700
£410,000. The bigger
premises are priced at
Spending = OK £460,000.
The spreadsheet they have set up allows Deep Fried Fred’s to see
quickly and easily the effect on the total start-up costs of buying the
larger premises. It also allows them to assess where they might cut
costs in order to keep within budget.
How might Deep Fried Fred’s buy the larger premises
whilst keeping within their budget?
My Start-Up Costs
Start-up Stock I will have to buy … £1,000 -
Property Rent I will be renting my property in … (name £1,000 –
the street and town). I will have to make £2,000
a “down payment”.
Equipment I will have to buy fixtures and fittings £4,000 –
such as … £8,000
Advertising I will need to inform local people that my £500 –
…… shop is opening £1,500
Decoration of new I will need to decorate the interior £800 –
Any other costs I need some spare money available for £500 –
unforeseen payments £2,000
BUDGETED Are you under or over your budget?
My Running Costs
Stock I will have to top up my stock each £100 - £750
month depending on demand. I intend to
spend £….. Each month
Property Rent I will be renting my property in … (name £500-1000
the street and town). I will have to make
monthly/weekly payments of £….
Utilities Each month I will need to pay for Gas, £50-150
Electric and Water.
Advertising Each month I will need to spend an £50 –
amount on advertising to tell people £500
about my products and services.
Communication I will have to pay for a phone line and an £20 –
internet connection. £60
Insurance I need to pay a monthly amount to cover £50 –
my insurance for my business. £150
What can go wrong?
Sometimes initial estimates can be inaccurate, which often
results in the final costs for a project being much higher than
originally predicted. There are a number of reasons for this:
the original estimates were incorrect
the decision-making process took a
long time, and/or general delays in the
process increased the overall cost
inflation increased the overall cost
the business did not properly monitor
Reducing my start Benefits Drawbacks
up budget option
Spend less on stock Can still buy stock but at a cheaper Cheap stock might be of a worse quality and
by finding a price therefore customers might not be happy with
cheaper supplier product and might not come back therefore
lose customers and money
Spend less on rent This is a big expense as it is a The property might not be in as good a
by finding a running cost as well as a start up location so people won’t come = no money,
cheaper property cost therefore reducing the property might not be big enough therefore can’t store
cost will have a big impact on costs enough products therefore customers can’t
buy what they want and wont come back= no
Spending less on Could easily do it yourself and If you do it yourself might look tacky therefore
decorations easily find cheaper suppliers of customers might not come = no money. If you
paint etc use poor quality materials they might not last
as long therefore you have to redo it costing
you more money
Spending less on Could easily find a cheaper supplier Might look tacky therefore your business
equipment or buy second hand might get a bad reputation and people won’t
come = no money
Spend less on Could use cheaper methods that The method might not be as effective = fewer
advertising could be just as effective e.g. having customers = less income
black and white leaflets rather than
Pass / Merit
Write up your report under your start-up and
running cost tables.
• What can go wrong with your budget?
• Are you over or under budget? How can you
• How does doing a start up budget help you with
your business planning?
• What will you do if you have a high unexpected
– Loan or Overdraft?