Costs of starting a business lower than ever

  • Small British businesses say the working capital needed in their first year was only £17,095
  • Almost half (48%) of businesses prefer to rent or lease goods to reduce upfront costs
  • 46% see paying monthly as the future and believe it’s set to increase

Small businesses founded within the past three years needed just £17,095 in working capital in their first year of trading, according to new research today.

What’s more, three in five (60%) believe that if they had their time again they could launch for the same or less, according to a new study published today by O2 Business*.

The lower costs are revealed as UK small businesses admit they are now choosing to rent rather than buy outright.

Almost half of the small businesses surveyed (48%) said they prefer to rent or lease goods because they felt it was the smartest way to reduce their upfront costs.

Over a third (36%) said it allowed them to stay up-to-date with technology, and a further 36% believed renting gives them better control of their cash flow.  Other benefits cited were the reduction of maintenance costs (29%), and increased flexibility (27%).

The most popular items to rent or lease, according to the 518 small businesses surveyed were:

  • A phone line (62%)
  • Office space (40%)
  • Photocopiers and franking machines (28%)
  • Water-coolers (21%)
  • Cars and vans (18%)
  • Smartphones or tablets (13%)
  • Coffee makers and vending machines (13%)
  • IT equipment (11%)

Of those surveyed, 46% of businesses see paying monthly as the future and anticipate that it will increase in the next five years – particularly among firms who don’t want to be ‘left behind’ as technology advances.

Smartphones have already come to be viewed as an almost essential tool in the modern workplace, with a quarter of businesses believing firms with the latest models are “tech savvy” and make a more positive impression with their customers and clients.

Paul Lawton, General Manager of SMB at O2, commented:

“Small businesses still struggle to grow due to a lack of funding, but the good news is that many looking to start up have a number of alternative options open to explore – such as leasing – which can work out far more cost-effective in the long run.

“As one example, we’re giving small businesses the access they require to the latest technology so that they can keep up with their more established competitors, without a need for them to front the high costs upfront. Our research showed that 72% stated that they believe keeping up with the latest technology is important to their business, with 23% viewing it as extremely important.

“We have developed a product, O2 Lease, which allows our smaller business clients to get an iPhone 5 on a twelve month contract – with no upfront cost for the phone. At the end of twelve months they’ll have the option to give the phone back and get a brand new one so they can ensure they’re always using the very latest models.”

When talking about funding, over half of businesses anticipated that costs would rise in the next five years.  37% believe it has become harder to borrow from banks which could spell trouble for would-be entrepreneurs if they don’t adopt a more paying monthly mentality.

Rachel Bridge, Sunday Telegraph journalist and author of ‘How to Start a Business Without Any Money’, added:

“It doesn’t make sense any more for small businesses to burden themselves with high overheads when you can pay as you go.  With funding ever harder to come by, every £1 spent needs to work really hard for small businesses and they should only be paying for what they really need.

“What’s fantastic is that there are a number of resources available for lease or rent, be that office space, IT equipment or even smartphones.   And, it’s not just about saving money, it’s also about building in flexibility so companies can change and expand as and when they need to.”

With O2 Lease, businesses can get an iPhone 5 on a 12 month tariff with no upfront cost for the phone. The On & On for Business package, which includes unlimited calls and texts and 2GB of data, is currently on sale: starting at £35 per month for an iPhone 5 16GB.

 *O2 conducted research amongst 518 small businesses (0-49 employees) in February 2013 with Opinium under strict Market Research Society Guidelines.