If You Can’t Cover These Costs, You Can’t Run a Business

I’m not sure who said it, but the general consensus is that 90% of tech startups and one in three new small businesses fail within the first year.

 

This extremely high rate of failure comes down to money…and a lack of it.

 

I like to keep my posts very hands on and practical so they provide tangible value aspiring entrepreneurs can add to their businesses. This is probably the most honest post you’ll ever see, and it will scare you. That’s ok though. Get used to being scared.

 

Most budding entrepreneurs underestimate the huge costs involved in starting a business from the ground up. They simply don’t crunch the numbers regarding the amount of capital that is needed to turn an idea into reality and then, more importantly, the cashflow needed to keep the idea going and growing.

 

If I had a dollar for every time someone came to me and said they were “just going to make a free website and start selling online!” I’d be very rich- and they would be very poor. Many entrepreneurs see online businesses as a cheaper alternative to traditional bricks and mortar businesses. In some ways they are, but just as if you pay $20 a week for a shack in the back alley of tumbleweed town, if you simply have a website sitting in cyber space with no paid marketing to attract visitors, no one is going to find you.

 

I’ve put together a cheat sheet that outlines all of the costs that entrepreneurs will have to cough up in these early stages.

 

My experience is in online and bricks and mortar fashion retail spaces, so some of these costs may not apply to you, but hopefully the overall size of the list will encourage you to do your own due diligence before it’s too late.

 

As always, these costings’ from my experience only and will obviously differ depending on industry and location.

 

I have rounded up the costs in the interests of conservatism.

 

This is a very high level overview for the sake of simplicity for those who are new to the small business world. Please contact me if you would like more detailed explanations of each category.

 

ACTIVITY: $$$$$$
STARTUP COSTS:

Public Liability insurance

 

Business name registration with ATO

 

Register a PTY LTD company with the ATO

 

 

$500 per year

 

$34 per year

 

$500 + $300 per year renewal

EMPLOYEE COSTS

Wages

 

Weekend and holiday loading

 

Super

 

 

End of year bonuses

 

Worker’s Compensation insurance

 

 

 

 

Depending on amount of employees, starting from 1K per week for 1-2 casual employees

 

 

 

$300 per week

 

 

Depending on amount employed, 2K per quarter +

 

 

1K (if required)

 

$500 per year

 

 

 

 

RENT COSTS:

Shop front- prime CBD location for a small shop

 

Office space

 

 

10K per month +

 

5K per month

INITIAL INVESTMENT IN PRODUCT: $10,000 (bare minimum to fill a small bricks and mortar store or populate an online store satisfactorily)
WEBSITE COSTS:

Website

 

 

Website subscriptions- plugins, live chat, Shopify costs etc

 

Domain name

 

Web host

 

SSL Certificate (Secures your website and checkout)

 

Paypal fees

 

 

Afterpay fees

 

Ebay, Etsy, and other marketplace fees

 

Newsletter provider eg Mailchimp

 

Ongoing website support from developer

 

Payment gateway from your bank in order to sell online

 

 

 

 

Anywhere from 1-5K depending on level of customization and capabilities

 

$200-$500 per month

 

$100 per year

 

$200 per year

 

$300 per year

 

2.6% + 30c per transaction (entry level package)

 

 

6% per transaction

 

From 5% per transaction

 

From $10 per month (up to 500 subscribers)

 

$100 per month as required

 

From $99 setup

$20 monthly fee

1.5% transaction fee

MARKETING AND LEAD GENERATION:

Brand identity: initial outlay for a graphic designer

 

SEO services

 

 

 

Facebook Ads

 

Google Adwords + Google shopping

 

Remarketing Ads

 

Management fees for the above

 

Instagram influencers

 

 

$5000

 

$2000 per month (It is very important to employ a local SEO company. Overseas lead generation often leaves websites vulnerable to hacking and corruption.)

 

 

$1,000 per week for any real results

 

$1,000 per week

 

$1,000 per month

 

$1,000 per month

 

Exchange product for post, however the major influencers with followings over 100K will charge anywhere from $500++ per post

LEGAL AND ACCOUNTING COSTS:

 

Accountant for basic end of quarter BAS and end of year reconciliation

 

Legal services for new leases, employee contracts etc

 

Subscription to accounting software

 

 

 

3K per year

 

 

1K per year average as required for very basic work

 

$30 per month for basic package

TECHNOLOGY:

 

Computers for office

 

Point of Sale system for bricks and mortar store

 

Hardware for Point of Sale system:

-Computer

-Receipt printer

-Label printer

 

Security system

 

Internet and phone connection

 

 

2K

 

10K for license + $100 per month subscription

 

 

1K

$500

$500

 

1K

 

$100 per month per location

POSTAGE:

 

Basic prepaid satchels

 

International shipping

 

Shipping on imported overseas product

 

Duty rates on imports over $1000

 

Sales tax on imports (GST)

 

 

$100 per 10

 

$15 per 500g parcel

 

$1000 per shipment (using an express courier such as DHL)

 

Average 5%

 

10%

 

PRODUCT SHOOTS:

 

Model

 

Photographer

 

Make Up Artist

 

Stylist (if required)

 

Location hire (if required)

 

 

1K for full day

 

1K for full day

 

$500

 

$500

 

$500

BRICKS AND MORTAR SHOP FITOUT

 

In a major shopping centre

 

Smaller boutique not in a shopping centre

 

Bank guarantee for shopping centre/bond for physical store

 

 

100K

 

5-50K (food businesses will require much more capital than a simple clothing or accessories store)

 

4 months rent in advance

OFFICE FITOUT

 

Desks

Chairs

Storage

Photographic equipment

Racks

Kitchenette

Stationary

Whiteboards

Photographic backdrops

 

 

 

 

 

5K ++

BANK FEES (for physical EFTPOS machine)

 

EFTPOS fees

 

Credit card fees

 

 

Terminal rental

 

 

 

.20c per transaction

 

1.5% per transaction (varies between banks)

 

$40 per month

 

(These can be negotiated between banks)

 

Genesis

 

 

The number one question that I get asked when I tell people that I own Stylehub is, “How did you start?”

I guess it’s a totally reasonable question- starting is the hardest part of any venture, right? ha- totally not right, but I’ll get to that later.

So where did it start?

I had just graduated from my journalism degree at UTS in Sydney after undertaking about 400 (actually 15) internships at various fashion magazines and websites. It was 2012, the print media was dying and no one had worked out how to make money from online media yet. So it was this weird limbo period in the world of publishing that made everyone nervous and therefore unwilling to open their wallets to pay us mere interns.

After the fifth magazine internship- I had worked at Grazia, Harper’s Bazaar, Yen, Madison and The Daily Telegraph weekend magazine, I kind of realised there wasn’t much of a future in this industry- not just for me, but for all aspiring mini Anna Wintour’s. Beneath the glossy exterior, the girls were hating life. They worked 12- hour days for $12 an hour- and they were the lucky ones. This was not a new and exciting industry, it was an industry that was struggling to keep its head above water.

On the third day of my Harper’s Bazaar internship, I had an epiphany, went to lunch and just never returned. I doubt they even realised I was missing. I just knew it wasn’t for me.

I worked at a restaurant PR company to build up some money so I could go away to Europe. (Could I be any more Gen Y?) This job was where Stylehub began. Literally.

The PR company was heavily print focused and the two dinosaurs running it refused to believe the internet was a thing. (This was 2011, not 1990, btw). I set myself up in the quietest corner of the office, did my work for the day from 9-10am and spent the rest of the day researching fast fashion and e-commerce.

There were a million things I needed

-Who would supply me with stock?

-Who would my customer be?

-How do I get people to actually buy my stuff?

-How do I make a website?

-How much do I need to start this thing?

I knew absolutely nothing, but by the time the dinosaurs told me that I wasn’t needed at the PR agency anymore, I had a web developer ready to go.

Of course, this isn’t the ideal way to start a business, but I was young, selfish and un- engaged- a dangerous combination for any employer.

I wanted to create a fun experience for girls my age who wanted fun fashion to wear for the weekend that wouldn’t cost them the earth.

Of course fast fashion wasn’t groundbreaking. It still isn’t, but I honestly thought I could do it better than anyone else at the time. I was working casually at Sportsgirl at the time and listened to customers cries that their prices were becoming way too expensive for this age bracket.

I truly believe the best entrepreneurs find a gap in the market and fix it. They don’t create something that has never been done before, they simply make existing ideas better. Zuckerberg didn’t invent social media, he just improved upon Myspace. Richard Branson didn’t invent aviation, he simply created a better experience.

I also wanted to use my hard earned degree and create a space where everyone could read and interact with an online publication.

Hence the name Stylehub.

I used my life savings of $10,000 to employ a designer to build the website ($5,000- can you BELIEVE I paid $5K to have a WordPress website built?) and the rest of the monety was spent on buying some stock from China and also making some cool short run exclusive designs.

I remember spending $500 at the local fabric store one Saturday- the owner hit the jackpot! I then drove around Sydney getting to know every dressmaker who works out of their garage. The dressmaker sent me to a cutter, the cutter sent me back to the dressmaker, they both sent me to fabric places- it’s amazing the things you learn just by asking questions.

I couldn’t afford intricate designs, so I created about 10 styles- simple body con skirts, shirts, pants, boob tubes- it was all ridiculous and I was totally out of my depth but I was actually selling my designs!

The website was made by this creepy dude who conducted Skype sessions topless. He created a website that was so ridden with bugs, I spent another 5 grand to get it fixed over the next few years. The creepy web designer has since fled the country- way to pick em.

I had a website, I had a few designs and I spent my last few hundred dollars on a photo shoot- I hired a professional photographer and models and everything!

I was off!

Now, to start actually making money…

Websites are notoriously hard to make consistent income from, unless you have funding to sink a few thousand into PR, SEO, Google marketing, social media advertising and every other type of exposure.

When you’re bootstrapped, this isn’t an option.

I was lucky enough to know some people in the media industry from my internships and friends who had actually made it as journos.

I had a few articles written about me in the early days and put any money I made from the dribs and drabs of sales into Facebook advertising to create some more buzz.

A few months in, I was doing ok, but not well enough to support myself.

I needed to kick start the cashflow. At this point, I had a serendipitous email from the owner of the Emerging Designer Markets in Westfield Sydney CBD.

I had one rack’s worth of stock and not enough money to pay a full month’s rent upfront, so I struck a revenue deal where we would split the revenue of the store 50/50. (I use the term store loosely, as it was really just one rack.)

I spaced out the clothes so far, so I could fill the rack and look like a “proper” business.

I sold a few pieces, reinvested the money into new stock and kept expanding from there.

One rack became two and two became three until I had my own little store space.

At this point, I stopped making my own products because I just didn’t have the time or funds to run around Sydney finding dressmakers. I also didn’t have the scale to think about manufacturing in China, so I sought out some affordable brands and negotiated purchase agreements.

From there, I started to focus full time on buying for the store and website and could afford to employ staff to run the store.

I remember going into the store one Saturday and being told we had made $500. To a broke 21 year old, this was mind boggling. It took me weeks to make $500 just a few months prior, and now I was making it in one day!

This was going to work.

From there, I expanded my little store and ended up with about five racks. (woo!)

My restlessness with being told what to do had reached boiling point when I was told I couldn’t expand my shop. I couldn’t build my empire with five racks!

So I by passed the landlord and went straight to the top- Westfield directly.

I asked if I could directly lease a permanent spot with them.

Ask and you shall receive! I had a one year lease and my own little space- no one could tell me what to do.

After a year in that space, I re signed for a permanent five year store, and this is where we are today.

With a team of five, the store runs itself right now, so we have decided to expand to another shopping centre in November.

Having a retail store takes up A LOT of time and unfortunately, the e commerce side of the business took a back seat while the money maker allowed us to grow.

I have now decided that the website needs to be the main focus of our future. We are truly an omnichannel brand and we have implemented systems that allows our stock to be updated across all channels.

We have recently started from scratch with our website as the old bug-ridden site finally crashed a few months ago.

In some ways, I feel like I’m right back where I started- learning how to market a website from scratch.

Except now, I have a tidy social media following, a few years of retail experience, a team behind me, a soon to be completed MBA and $$$ to invest in everything I couldn’t afford to do from the outset.

I have no idea if this is the way to do it- countless people have told me that shopping centres are dead, but I genuinely believe I wouldn’t be where I am today without that single rack at Westfield a few years ago.

So, I guess that’s how I started- not so much a story of crazy start up triumph, but one of consistent and slow growth, multiple setbacks and bad decision making and most of all, not waiting for opportunities to come knocking, but creating my own.

I never got around to creating the publication section of my website, partly due to the incompetence of my first web designer and partly because I didn’t actually know what to write. I probably didn’t know what to write because I hadn’t actually experienced anything past dirty uni parties and internship nightmares.

I am now three years deep into a business that I built from the ground up, and still have a lot of building to do.

How cool would it be to create the dialogue that I never did, but make it about empire building?

What went right, what went wrong (so much, dear Lord!) and what we need to do to achieve those lofty heights that we have set for ourselves.

Stay tuned, this is only the beginning.

 

 

 

 

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