Advanced Manufacturing

What are the start-up costs for a Manufacturing Business?

Monday 29 June 2020, 11:13 AM

11 Minute Read

The image of the UK manufacturing sector is, unfortunately, one that it is failing to live up to past glories. The phrase, “we don’t make anything any more,” is thrown around a great deal. It simply isn’t true. The manufacturing sector is responsible for around a sixth of the UK economy. No small fry at all! The fact that the UK has a long and proud history of manufacturing means that it is a great place to set up a manufacturing business. There are few barriers to entry and a long line of successful businesses to look up to.

With that in mind, if you have an idea for a business in the manufacturing sector, you shouldn’t think that it is a non-starter. You can make a success of a manufacturing startup in the UK. The idea that startup costs are cheaper overseas might still be valid, but manufacturing success is about far more than low cost labour. Plus, there are some strong incentives from the UK government for those that launch a new business. One such area is R&D tax credits. This rewards companies that spend cash on developing something new. This article will take a look at how LUMO can work with your business plan to identify areas where you may be able to claim R&D tax relief.

Before You Launch

There is a great deal of work that goes on in the background for a manufacturing business before you even get off the ground. An idea is only that until you start to put some meat on the bones. You will already most probably have a very good knowledge of what you want to produce. But it is now tome to start looking outside of the confines of your own mind. Ask a few questions

  • Does this product already exist somewhere?
  • Can you protect it from imitators?
  • Is there a viable market for the product?
  • Can I access this market?

Obviously, these questions are just as valid whether you are starting a new business from scratch or have a new idea with your existing manufacturing business. They are a cost in terms of time and effort, as well as the cash you spend on commissioning reports or using an outside contractor to do some of this research for you. Market research companies are lining up to help you here.

Trademarks and patents are the natural way to protect the idea you have come up with, but this costs a stack of cash. There is information from the government about this if you want to look into it yourself, but we recommend that you seek professional advice too.

This is where R&D tax credits first step in. If you have sent time and money researching the possibilities, then you could very well have an R&D tax claim on your hands. They are designed to help businesses who spend time looking at alternatives, testing them and coming up with solutions.

Raw Materials

Once you know how to get the business up and running, you should look at what you need to actually assemble a product. The raw materials might come from the UK or overseas. If they come from a different part of the world, then you should factor in currency fluctuations. Ask yourself –

“What would happen if currency fluctuations drove the price of raw materials up by 10%? 25% 50%?”

Looking at an uncertain future can help you plan. We never know what’s around the corner in business, just as in life. The raw materials you need for your startup manufacturing business are going to be the things that you need a supply of week after week, month after month, year after year. When you go out there and research the market for options, there will be a lot of time and effort expended. The cash that you use for this can be part of an R&D tax claim. Get in touch if you want to find out how to submit this claim and stand a very good chance of success. We have a 100% success rate with the tax man when submitting R&D tax claims on behalf of our clients. And we don’t charge you a penny until the money is safely back in your business.

Looking into Production

Of course, a major step in a manufacturing startup is to get production sorted. But this isn’t just a case of up and running – you need to research all of the different options, such as –

  • Whether you will manufacture it yourself
  • Where it will happen
  • What you need in terms of buildings
  • What you need in terms of machinery
  • Who will operate it?

Pulling all of this together will require another batch of research. The answers will only come when you have al the required information at your fingertips. And this can take up, again, a lot of time, effort and cost. Getting this right will establish other things such as your capacity and profit margins, so you really need to put the legwork in here to ensure you understand what it will all look like.

R&D tax credits are a distinct possibility if you have set up a manufacturing business over the last few years and been through these processes. The government wants to help you regain some of these costs. LUMO wants to help you secure this money as quickly as possible. With a turnaround time of around 4 t 6 weeks for the people we help, you can see that we are on the side of the manufacturing business.

The Cost of a Sale

This might sound like a simple concept, but it is the one that makes or breaks manufacturing businesses. You need to know how much money is costs to make a sale. This includes all relevant costs such as

  • The raw materials
  • The production costs
  • All the equipment
  • Staffing costs
  • Packaging and shipping
  • All other business costs
  • Marketing

And there will be more depending on your business and the routes to market (more about this later) you select. You will probably need things like business insurance and maybe subscriptions to trade bodies. The total costs need to be assessed when you look at this part of a manufacturing startup. Once you know the price of producing a single unit, you have a cost price. From there, you will need to look at margins to derive a selling price. Then you should market-test this by looking at any competition.

Your Time

One of the main factors that just isn’t readily obvious is the time it takes to get something from the idea stage to market. You can see from the rest of this article that there are many areas to consider. Each of these takes up a big chunk of your time. Even if you are working at this full time with a few other people, results aren’t overnight. The time you need to go from zero to hero is a startup cost for the manufacturing business that you should calculate.

Routes to Market

There are many different ways you can get to market. Some of these might be dictated by the product you are manufacturing, others can be down to choice. For example, if your product is for the B2B market, the sales reps is a common tactic. But if you are selling directly to consumers then getting your product in a supermarket or other retailer might be the goal.

Think long and hard about the routes to market and which one might be best for you. The research you put into this might extend the timeline in getting to the market in the first place but getting it right will pay dividends in the long run.

Unforeseen Costs

They will arrive, mark our words. You might think that you have dotted every i and crossed every t, but there are always costs that rear their ugly heads when you least expect them to. Always leave some space in your budget for the things that you didn’t (and couldn’t) plan for. And accept that they will happen no matter how organised you are.

What All of This Means

Once you have all the required information, made decisions that have brought your idea into fruition you have launched! Congratulations! All of the hard work put in to develop a startup manufacturing business is to get up and running. You will have a business. And you will, have spent a great deal of effort, time and money to get to this stage.

We can’t help getting that time back (why would you want to?) but we can help with the money. LUMO are experts in R&D tax credits, which means we are your ideal partner to make a successful claim for R&D tax. If you have any questions, then drop us a line and we’ll do the rest. Our service includes a no-obligation consultation to start the process and then we do all the legwork with the tax man, so you don’t have to.

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