In this article, we explore the main expenses to consider before opening a retail store, ways to reduce them and how to use business finance to fund your year-one costs.
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Starting a retail business in the UK doesn’t have to be expensive. Depending on your business plan, you can even start a business with no money. But for most entrepreneurs, you’ll need some initial investment to get your started. The first step is to understand the upfront costs involved and what financial support you may need.
Operating in retail involves certain expenses you may not see in other sectors – inventory, utilities, product liability insurance, shop rental costs, etc. Online retail companies and service-based business models typically have lower overheads, with costs often centred around technology and specialised equipment.
Consider the upfront investment required before opening your doors, such as securing a store location and kitting it out, stock and staffing needs, business rates and promotional activities for launch.
How much does it cost to open a retail store? Well, costs vary, depending on your location, business size and type of products, but the average first-year cost of running a retail business is estimated at £172,000.
So, let’s look at the main expenses to expect when starting a retail business,
You’ll need to calculate potential business rates and rental prices. If you’re not wedded to a particular location, research different areas in the UK and see which have the most affordable rates.
Unsurprisingly, South East England has the highest rental costs. London, Cambridge and Oxford are around £50 per square foot per year,* whilst most of the cheapest areas are in Wales, Scotland and Northern England, including cities like Hartlepool, Rotherham and Blackpool (between £12-15 per square foot per year).*
*Average prices according to Real Business Rescue.
The heatmap graphic below from Bionic demonstrates the cheapest and most expensive areas in the UK for commercial property rental:
Also, there are business rates to consider. These are taxes charged on most non-domestic properties, including shops, pubs, offices and warehouses, based on the property's rateable value. For small businesses, they’re typically around 50% of the value. See the HMRC’s dedicated page for estimating your business rates.
The good news? You may be eligible for the government’s Retail, Hospitality and Leisure Business Rates Relief Scheme, which eases the burden.
Judging initial inventory investment is difficult, as you don’t have revenue and sales stats to back you up, but keeping a healthy inventory with minimal waste is vital for retail business success.
Research your market thoroughly, accounting for your marketing spend, to estimate likely demand and predict stock levels you’ll need from the outset.
According to a recent IHL Group study, inventory stockouts and overstocking cost retailers nearly $1.8 trillion in 2023. While Retail Insight revealed stock issues can lead to lost sales of around 8% of revenue.
Use smart data systems to analyse and predict inventory requirements to avoid costly excess or empty shelves, which impact your reputation and hit you in the pocket.
Here are a few tips for efficient inventory management:
When starting a retail business, you need to cover yourself against various risks and potential claims. So, get to grips with your likely retail business insurance costs.
Here are the key types of insurance retailers need:
Rising energy costs are a concern for small businesses in the UK. While recent economic volatility has eased a little, utility prices are still a big issue for SMEs.
As a retailer, carefully budget for things like electricity, water and internet connectivity. Also, explore energy-saving measures like energy-efficient lighting and equipment, building insulation, going paperless and carrying out regular audits to minimise utility expenses. Get insights from comparison websites and money-saving experts to find the best value.
A successful retail business doesn’t grow silently. Most digital agencies recommend new businesses allocate between 10-20% of initial gross revenue to marketing activities. So, set aside enough marketing budget to build your brand and reach your audience effectively.
Although paid search and social channels and remarketing ads help generate revenue, you should explore cost-effective marketing tactics alongside your advertising spend. Here are a few options to consider:
Combining organic and paid marketing tactics across channels can help you keep costs down while achieving great results.
The investment required to start a new business can be daunting. Want to know how to cut costs in your retail business? We’ve outlined ways to reduce business costs and ease pressure.
Securing the best rates and terms is an important money-saving measure, so negotiate with your suppliers, service providers and landlords. This may sound easier said than done, so here are a few tips for negotiating better deals:
The UK government has various support for small businesses, including grants and the Retail, Hospitality and Leisure Business Rates Relief Scheme. This scheme offers relief to businesses using properties as shops, restaurants, cinemas, music venues, and other hospitality purposes. Those eligible can enjoy up to 75% relief on their business rates – capped at £110,000 per business.
You could also secure a government grant, receiving reduced business costs, free equipment and cash awards. Funding bodies consider business size, location, sector and purpose.
Explore your options at https://www.gov.uk/business-finance-support.
Once you’ve fully considered the major expenses of starting a retail business you may need additional capital. Business finance can help you lay the foundations, fuel initial growth and ease the burden of year-one costs.
There are various options available to retailers, such as:
Many retailers use revenue-based finance to access a lump sum and make repayments as a percentage of future card sales, so payments adjust as you grow.
Iwoca offers a range of flexible business finance solutions to help retailers fund initial costs, from securing store locations to investing in stock, systems and promotions. Our small business loans offer fast access to capital, which can be invested where it’s needed to kick-start your retail business.
You can be approved within 24 hours and enjoy flexible terms and affordable monthly repayments. It’s easy to apply for a business loan with iwoca. So explore our finance solutions to see how we can get you off to a flyer.
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