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The average start-up spends more than £22,000 on admin in the first year of business, leavig them with serious consequences for growth, according to new research.

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Online business service Geniac found that the average start-up invests £22,756 in its first year to cover essential business administration costs, including accountancy, company formation, HR and legal services. Yet those thinking of starting a business underestimate these expenses by £2,525 on average.

The average London business spends £30,211 on essential business administration in the first year. Businesses in Wales are able to run at less than a third of the cost at £8,096. Interestingly, the north of England is the second most expensive area in the country for new businesses, with the average small business shelling out a third more compared to those in the South East.

The largest business administration outlay is associated with ‘company formation’ (including company set-up, drafting articles of association, board minutes and shareholdings). This reaches £6,378 on average or 28% of the total amount. However, the cost would-be entrepreneurs are most likely to underestimate is accountancy fees, with those surveyed budgeting £1,723 less than the amount existing business owners actually incurred in their first year.

The Government estimates that more than 350,000 new businesses launch in Britain each year, but around half will fail in the first five years. Geniac’s research shows that nearly two-thirds (64%) of small business owners say they get hit with unexpected costs, the negative consequences of which include experiencing profit losses (23%); being forced to readjust growth targets (21%); and having to let staff go to free up funds (7%) – all factors that increase the likelihood of business failure.

Mike Galvin, co-founder of Geniac, said: “It’s concerning that startups and small businesses are not only losing  profits and staff but are readjusting growth plans because they’ve underestimated the cost of starting up. It’s even more worrying that they are over-paying in nearly every area of business administration – in nearly every part of the country.”

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