BLOG

Calculating startup costs

Grow London LocalMatching London small businesses to support

Posted: Wed 6th Aug 2025

London is a city that's rich with opportunities but it's also an expensive place to start a business.

Depending on where in the city you're based and the type of business you're starting, costs can vary, so you can't rely on anyone else's estimations or projections.

Calculating your startup costs is one of the most important tasks on any new business owner's pre-launch checklist.

These calculations allow you to assess how much cash you need to get your business off the ground, whether you require external finance and whether your venture is actually viable before you commit your time and resources.

You may be surprised at the hidden costs you uncover and how quickly they can add up.

Categories of startup costs

From the initial outlay to those recurring payments that keep the doors open and the lights on, here are the different categories of startup costs you should include in your budget.

One-time costs

One-time costs are typically incurred prior to launching your business, though you may make other one-time purchases later, and can include:

Business registration: it costs £50 to register online with Companies House as a limited company (ltd) or limited liability partnership (LLP). You can also register by post for £71. There is no fee to register as a sole trader or partnership.

Market research: it's essential to conduct market research to ensure your offering meets the needs of your target customers and can compete against rivals. This can be anything from simple, low-cost online surveys to in-person focus groups or international market analysis.

Equipment: this is usually tech, such as laptops, but can also include more specialist equipment.

Inventory: to start trading, you'll need an initial batch of inventory. This first product run allows you to gauge demand, work out sensible stock levels and estimate your ongoing inventory costs.

Website design: many businesses use a subscription-based website builder to create their online presence. However, if you want more creative control or something more complex, you may need to pay for a web designer.

Fit out: if you're not a home-based business, fitting out your premises is likely to be one of your largest upfront costs.

Ongoing costs

Ongoing costs are all the recurring expenses that keep your business in operation:

Rent: you should budget from £1,200 to upwards of £5,000 per calendar month for an average commercial unit in London.

Utilities: the average microbusiness (one to 10 employees) in the UK uses between 5,000 and 15,000 kWh of electricity and gas per year, costing around £855 and £356 respectively. Broadband costs between £20 and £60 per month and water is between £1,000 and £8,000.

Salaries: this is one of your biggest ongoing expenditures. The current National Living Wage is £12.21 and in 2024 the average salary in London was more than £47,000. If you're the director of your own limited company, your own salary is treated as a business expense.

Marketing: there are many free ways to engage with your existing and potential customers, including via social media and search engine optimisation (SEO).
Paid strategies such as pay-per-click (PPC), display and targeted email campaigns can increase your reach. Traditional methods like direct mail and print advertising may also be useful, depending on your target audience.

Website: using a website builder can cost you from £10 to £20 per month for a basic website and up to £100-plus for a full-featured or ecommerce site.
You also need to pay for your business web address and should consider a .LONDON domain name. This can help you rank better in London-based searches and is great for building trust with local consumers.

Taking payments: whether you need a physical point-of-sale machine for a shop or an online payment system, you'll usually pay a monthly fee and a percentage of each transaction to take payments from your customers.

Hidden or overlooked costs

Don't forget to include these frequently overlooked costs in your calculations:

Insurance: employers' liability is the only insurance you need by law, with a cover of at least £5 million if you have even one employee. However, you should also consider:
- Public liability insurance, which covers compensation and legal costs if a member of the public makes a claim against your business.
- Professional indemnity insurance, which covers the costs of defending and settling claims made against you for errors, negligence or giving bad advice.
- Property and contents insurance is wise if you have premises.
- Cyber insurance will help to get you up and running quickly in the event of a cyber-attack.
Accountancy and legal fees: seeking the expertise of an accountant or solicitor when setting up a business may help you avoid costly errors in the long run.
It's common for accountants and solicitors to charge by the hour, a flat fee for a specific service or a monthly retainer if you require their services on an ongoing basis. Find legal support for your small business.

Deposits: your landlord may require an upfront deposit to cover damage or losses from unpaid rent, which you'll get back at the end of your lease minus any deductions. A deposit is usually three to six months' rent.

Software subscriptions: many businesses rely on software for everyday functions like project management, human resources (HR), customer relationship management (CRM), bookkeeping and payroll. You can get a better idea on the total cost of these subscriptions by comparing plans from different providers.

How much do business premises cost in London?

Unless you plan on running your business from home, premises account for a considerable portion of your overall startup costs.

Premises

There are a few options when it comes to your business premises, including:

Renting a commercial unit

The rental cost of commercial premises in London is worked out per square foot (sq ft) per year and is currently anywhere between £20 and £150 depending on location.

So, if you took a retail unit of 2,000 sq ft, you're looking at a low of £40,000 per year (£3,333 per month) and a high of £300,000 (£35,000 per month) in rental costs.

Coworking space

A more cost-effective solution is to take a dedicated desk in a coworking space. There are more than 1,100 to choose from in London and a dedicated desk costs an average of £297 per month.

Business rates

Business rates in London contribute to the local services in your borough that benefit your business.

The rateable value of your premises is set by the Valuation Office Agency (VOA) and is based on its open market rental value.

It is then multiplied by one of two "multipliers", which are set by the government. These are currently:

Small business multiplier for rateable value below £51,000: 49.9p.

Standard multiplier for rateable value of £51,000 or more: 54.6p.

If your rateable value is under £15,000, you qualify for small business rate relief. This means you won't pay rates on a property with a rateable value of £12,000 or less, if that's the only property your business uses.

If your rateable value is £12,001 to £15,000, the rate of relief reduces gradually from 100% to 0%.

Licensing and permits

You may need licences or permits to operate. For example, if you offer beauty and cosmetic procedures or tattoos and piercings in London, you need a Special Treatments Licence, which can cost anything from around £300 to £900 depending on the borough and type of treatments offered.

To sell alcohol, you need an alcohol licence fee, which costs anywhere between £70 and £1,000 depending on the size of your business. Make sure to research what licences and permits your specific business needs.

Tools and templates

As there is a lot to keep track of, we recommend creating a spreadsheet or using a startup costs calculator tool.

Informi (powered by AAT) has a free startup costs calculator. You can also find lots of support to help you save money with our small business offers.

Estimating and budgeting tips

The startup costs outlined are in this guide are estimates. It's important to do your own research and request quotes to get accurate costs for your calculations.

With that in mind, you should include a contingency of between 10% to 20% in your final figure to account for hidden costs and unforeseen circumstances.

It's better to overestimate your capital requirements and have money to spare rather than being hit with a nasty surprise that you can't afford.

Funding considerations

Here are some popular ways to fund your London startup:

Bootstrapping: using personal savings as funding, which allows you to retain full control and ownership without external interference.

Loans: borrowing money from banks or lenders that must be repaid with interest, allowing you to retain ownership while accessing capital.

Grants: non-repayable funds typically provided by governments or institutions that provide free capital without giving up equity or incurring debt.

Crowdfunding: raising small amounts of money from a large number of people online is a great way to check the viability of your idea while generating early customer engagement.

Venture capital: funding from professional investors in exchange for equity, which as well as securing significant capital can also provide strategic guidance and useful connections.

Angel investment: capital provided by wealthy individuals in exchange for equity, offering early stage funding plus mentorship and networking opportunities.

Learn more about your funding options in this free webinar with Virgin StartUp and access financial support for your small business.

Final thoughts

Calculating your startup costs is an essential part of launching a business. The more detailed and realistic your estimations and projections, the better prepared you'll be to put sufficient capital in place to give your new business the best chances of success.

Grow London Local: Support for London's small businesses

No matter where you're based in London, you'll find relevant support and guidance on business planning, sales and marketing and much more, as well as opportunities to connect with like-minded business owners. Visit Grow London Local now