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Starting an online shop - Part 4 - Budgeting

Budgetting for your online store

A vital part of planning any business venture is the preparation of a budget covering both the start-up phase and first year of operation. You should also extend this to cover the next few years, at least in draft form, allowing for reinvestment and growth.

The costs incurred will fit into a few groups, including: one-off initial expenses, recurring costs and other incidental costs due to growth or other reasons (e.g. equipment failure, etc).

1. Banking Charges

One of the most underestimated groups of costs is those associated with banking (or payment processing). While most business bank accounts come with a free period, make sure you examine and account for the costs which will eventually apply.

There will also be initial fees and monthly subscriptions associated with Internet Merchant Accounts (e.g. Streamline services). Your payment provider may levy similar charges in addition to per-transaction charges.

You must balance projected income against these costs, and account for per-transaction charges within product pricing. For example, you would not want to offer a product for sale at 4p if the minimum charge for processing a transaction was 5p!

2. Costs of eCommerce software

There are likely to be costs associated with your eCommerce shopping cart software, plus any necessary professional services. Even if you choose a free shopping cart system (or a DIY package), you may incur costs associated with hosting, security, integration and possibly software licensing.

Our shopping cart packages are all inclusive and we do our best to make the costs as clear as possible. Be cautious in this area, as unexpected hidden costs later on could prove damaging to your business!

It is common for both up-front costs and regular monthly (or yearly costs) to be incurred in this area.

3. Stock and equipment

Will you require new hardware or equipment to trade efficiently? Are you using your personal computer and printer? If so, might you need to replace them for business use in the future? - if so - allow for these costs from day one.

Will you need specialised hardware (e.g. label printer), or will you need capital to purchase packing materials or stock for your online shop?

If you are planning to purchase stock upon demand, or to use a drop-shipper to provide this portion of your service, then be very cautious - online shoppers tend to be very impatient and are accustomed to rapid despatch and delivery of their goods!

When accounting for Postage and Packing costs, factor in postage, cost of materials and then round up slightly to ensure that you do not lose out - remember that it takes time to pack goods property and well packaged goods are more likely to arrive in the condition which the customer will expect.

4. Your time is not free

Even though it is your business, that doesn't mean your time is free. We published an article a while ago about the real costs of eCommerce, which was intended to help illustrate this point.

Decide how much your time costs (or how much it would cost if you had to employ someone to do the job - for this reason it is wise to factor in these costs at the minimum wage or above) and make sure this is covered. If it takes you ten minutes to prepare a parcel for despatch, then apply the appropriate proportion of an hours pay.

Running an online shop is a time consuming business; you may find it helpful to keep a diary of how you spend your time, initially, as this can help you to become more time (and cost) efficient in the future.

Conclusion

As with the other parts of this series on starting an online shop, this article only touches on some of the issues which you may face, but is intended to raise your awareness of some of the possible pitfalls.

We would recommend that you consider consulting an accountant or other qualified professional prior to embarking upon any business venture!

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