iwoca, one of Europe’s largest small business lenders, announces the launch of its Small Business Growth Calculator, a tool that enables business owners to estimate the investment needed if they want to scale their business.
2022 has been a year of uncertainty for many SMEs. With the rising cost of both living and doing business, many are understandably more cautious about taking risks.
But with the announcement of the Government’s support package providing some clarity around what they can expect with energy prices, business owners can now start thinking about where to spend money for those who plan to grow.
iwoca’s calculator factors in overhead costs and operating expenses – from employment needs to marketing spending – to give small businesses a personalised estimated cost to scale. It allows for inflation as well (at its current rate of 8.6%).
Hiring is the highest cost for scaling businesses
The main outgoing for SMEs looking to scale is hiring and retaining employees. In the current financial climate, it’s essential for small businesses to budget to ensure they can pay competitive salaries that enable employees to combat the rising cost of living, and attract new hires to help their business scale.
With the average UK salary sitting at £31,285, and mandatory national insurance contribution, employee pensions, and employers liability insurance amounting to £4,565, SMEs should budget for just under £36,000 for every full-time employee they intend to hire when scaling. If businesses also need to provide a work-from-home set-up and potential co-working spaces this could be even higher: £37,780.
Hidden costs SMEs may be unaware of include transaction fees, insurance, and legal costs
Scaling SMEs may need to budget nearly £14k per 300 sq ft of retail space, and over £20k per 100 sq ft of storage space.
SMEs who require retail space to scale may need to budget £13,678 per 300 sq ft. This price also factors in utility bills and energy costs, but growing businesses will need to consider the changing economic situation coupled with the increasing price of energy. If a scaling business has a tighter budget and can operate online, forgoing retail space may be more cost-effective.
The space that a business needs will depend on its sector and size. But if it needs extra storage space to scale, it can either rent this at an average yearly cost of £1,680 for every 50 sq ft, or buy it for £20,471 per 100 sq ft.
Growing businesses should account for over £2k in transaction fees for every £100,000 they make in card sales
The majority of businesses conduct their sales via card payments which are subject to transaction fees; for every £100,000 a business takes in card sales they should expect to pay £2,150 in fees, which over time can impact overall revenue significantly.
Cheryl Sharp, accountant and small business owner of Pink Pig Financials said, “This is a great tool to get business owners thinking about costs in these uncertain times. It’ll help them estimate how much they need to spend – and on what – if they want to scale.”
Colin Goldstein, iwoca’s Commercial Growth Director said, “Although these are tough times for small businesses across the country, there are many who will still find great growth opportunities.
“The various relief schemes that the Government announced recently will be very welcome and support SMEs over the short-medium term. But, we hope iwoca’s scaling calculator will also support them in deciding where to allocate their spending and maximise exciting opportunities that lie ahead.”
Businesses should allocate £10k on marketing for every additional £100k they want to make
Another high expenditure SMEs should budget for is how they market their business. Marketing includes social media, PR, and branding, and is essential to growing brand awareness and boosting sales, making it a necessary outgoing for businesses wanting to effectively scale. SMEs should consider allocating 10% of their desired revenue to marketing, according to iwoca’s calculator.
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