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Small startups rent to slash first-year costs

Small British startups are cutting first-year outgoings by opting to rent goods in a bid to reduce upfront costs, according to data from o2 Business.

New research has shown the average cost of working capital needed for a small startup’s first year was just £17,095, while nearly 50% of businesses were able to start on less than £2,500.

A wide trend was uncovered by o2, who found 48% of small companies prefer to rent or lease goods, such as phone lines, office space, photocopiers and smartphones, rather than buying them outright.

Over a third also said this tactic allowed them to keep up with ever-changing technology because they can easily update the equipment they use, while 36% said renting gives them better control over their cash flow.

29% added that maintenance costs were reduced and 27% said it gave them better flexibility.

According to the businesses surveyed, paying monthly is the way forward and 46% of small firms anticipate it will increase in the next five years.

Entrepreneur and Sunday Telegraph columnist, Rachel Bridge, commented: “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.”

Paul Lawton, general manager of SMB at o2 Business added: “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.”

Edwin Morgan, spokesperson for the Institute of Directors, commented: “It is positive for Britain’s entrepreneurial culture and the economy that many small businesses find they are able to get going with pretty low start-up costs.

“The internet in particular has been a significant driver in helping people to turn ideas into businesses at low expense.

“Start-ups have always had to be inventive, and if leasing rather than buying goods cuts costs, it makes sense to consider it as an option.

“If these companies are going to become the big employers of the future, however, government must reduce the red tape barriers that discourage them from taking on more staff and expanding.”

The survey drew responses from 518 small businesses with less than 49 employees in February 2013.

This was posted in Bdaily's Members' News section by Miranda Dobson .