Business LeadershipElite Agent

What are the real costs involved in funding a startup?

As a sales agent, you’re one of the best! You’re winning awards, have a dominant market share, lead a small team and the cash is flowing. So what’s next? John Knight looks at the costs of starting your own office.

You’re at the peak of your career. You’re thinking about opening your own office. Irrespective of whether you want to create a new independent brand or join an established franchise group, the cost of starting an office can be significant and the last thing you want to do is run out of funds too soon.

These are some of the costs you need to consider when starting your own office.

BRANDING (NOT JUST YOUR BRAND)

It can cost a lot to create a brand, but even more to create awareness of your business and an understanding of what it stands for. If your dream is to create a new local brand, you will want to earn awareness ASAP.

Maybe you launch with a bang or lean on your existing relationships and personal name to gain traction but, either way, if you are creating a new brand in my view you need to budget at least $25k to get started. There’s a lot more to branding than designing a logo.

STRUCTURES, LICENCES AND LEGALS

The ideal structure for you and your new business will largely depend on your long-term vision and whether you are going into partnership with someone else.

Assuming you are the 100 per cent owner of the business, you will want at least a company and a trust in your structure. Combining this with lodging the required licence applications, ABN registrations, professional advice (including to review the franchise agreement) and so forth, I would suggest budgeting $5k as a minimum upfront cost.

Add another partner in the business and this could easily double, due to a potentially more complicated legal structure and the need for a shareholders’ or partnership agreement.

It is rare to see a new office even make a profit in the first 12 months of trading, so you need to set up your personal life to be ready for this during the start-up years.

TECHNOLOGY

Most technology these days doesn’t come with a large upfront installation cost. With cloud-based subscriptions, you can start lean and increase your costs as your team grows. Embrace the cloud and lean on the likes of Google for your emails, data storage and general office applications to keep costs low in the early days.

WORKING CAPITAL

Every business needs a certain amount of costs each month just to open the doors (physically or metaphorically). Accountants call this your working capital. The old-school rule of thumb is to budget for three months’ working capital; that means you need to add up all your expenses for three months and that is how much you need to have in reserve just to get started.

For example, if your costs of trading, including subscriptions, wages, retainers, rents and so on, are $20k per month, then you need $60k just to pay these costs out over a three-month period. It essentially assumes you have no income during this time. I suggest providing for six months of expenses for a brand new office, due to the time it takes for the cash to hit the bank account.

OPPORTUNITY COSTS

Some of the biggest costs agents often fail to take into consideration when opening a new office are opportunity costs – the income you would have otherwise earned as a sales agent or property manager. It is rare to see a new office even make a profit in the first 12 months of trading, so you need to set up your personal life to be ready for this during the start-up years.

Everyone’s situation is different, so seek professional advice specific to your circumstances, but I would suggest that as a bare minimum you need around $100k to $120k available – and that’s assuming you don’t draw a wage for 12 months.

The rewards, both financial and personal, from opening your own office can be huge. It is important to go into it, though, with your eyes wide open as to what it will cost you to get started.

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