The success of low-budget startups such as Shopify and ShutterStock proves that you don’t need a fortune to create a successful business.
But it is crucial to use precise planning to ensure that your UAE startup can be launched on budget, and isn’t undone by prohibitive levels of investment.
Here’s the solution – a quick guide to the real costs involved in launching your startup successfully in the UAE.
Cost #1: Free zone and mainland options
Setting up your trade licence is the key financial outlay that needs to be calculated for UAE startups.
In addition to a trade licence being a legal necessity, choosing the right type of setup is vital when it comes to both your expenditure and trading flexibility. Without being legally registered, you can’t trade, open bank accounts, advertise, or recruit staff.
So this means making the choice between free zone or mainland setup.
The fastest way to do this and define your exact needs and costs is to work with a company formation specialist. Experts are able to walk you through your free zone and mainland options enabling you to make the best decision. Although you can analyse your options alone, you’re likely to waste time and resources, as well as potentially making some costly mistakes.
In terms of cost: most new companies find that free zone setups are the best choice when starting.There are one-time payments such as free zone registration and company name reservation.Those are then added to yearly fees including office rent, free zone licencing, visas, agent’s fees, bank fees etc. So a startup may typically incur total fees of between USD 5,000 – 30,000 in year one depending on the structure you choose.
Cost #2: Website and other one-off costs
Once your business setup costs have been projected, the next step is to add one-off startup essentials. Most notably, this is likely to mean having a website designed and populated with products and content. According to the eCommerce Cost Guide this is estimated to be something in the region of USD 2,500 – 10,000 for an average startup’s website.
Other launch costs may include apps, branding and press releases. Creating an inventory and researching the costs will help you project the capital needed.
Creating an inventory and researching the costs will help you project the capital needed.
Cost #3: Recruitment and wages
Other key costs for UAE startups are recruitment, visas, insurance, and paying your team.
Realistically, you’ll need to pay close to market rate for talent, so it’s important to define exactly how many workers you need and the cost of recruiting and paying them for the first 6-12 months. Some startups reduce the cost of HR by offering equity to employees, but this needs careful consideration.
A company formation expert can help you understand employee visa and insurance costs.
Also, remember to factor in your own salary. Regardless of whether you’re a solopreneur, in a partnership, or working with investors, it’s important to define a salary that is fair and serves both you and the business. An American Express survey found that the average small business owner in the US pays themselves a yearly salary of USD 68,000.
Cost #4: Marketing and advertising
Data suggests that spending approximately one percent of revenue on marketing/advertising is an effective ballpark figure for businesses.
However, for startups and SMEs, research by Sageworks, an expert in enterprise risk, suggests that your ideal marketing spend is likely to fall between two and four percent of revenue.
With your startup you may need to base initial marketing costs on your predicted revenue.
Cost #5: Customer acquisition
Whether you’re a B2B or B2C company, you’re likely to face the startup issue of cost of customer acquisition (COCA).
You can reduce COCA by using several strategies, such as focusing on word of mouth, being laser focused on core customers, and using automation (such as Amazon reviews).
These techniques are highlighted by Bill Aulet in Disciplined Entrepreneurship:
“The biggest driver of reducing COCA is positive word of mouth about a company and its product. This tends to dramatically decrease the sales cycle, decrease the customer’s desire to push for discounts, and bring in well-qualified customers who are already good fits.”
Aulet recommends avoiding direct sales if viable, since it’s usually the most expensive tool.
Cost #6: The future
It’s important to create a 6-12 month investment plan. In fact, it’s liberating to state the amount of money you are willing to initially invest (such as US 50,000) and the amount in total you are willing to add after 6-12 months (such as another USD 25,000 – 50,000).
Realistically, you should plan for financial security for at least the first year as an entrepreneur, without reliance on your revenue. By knowing your personal risk you can put all your energy into your business.
Realistically, you should plan for financial security for at least the first year as an entrepreneur, without reliance on your revenue.
Adapting your business to fit your capital
Once you know your core and unavoidable expenses, you can diligently try to economise if your budget is tight and finding extra investment is not viable. It’s vital not to cut costs to the extent that it negatively affects business revenue and growth.
However, creative thinking and resourcefulness can help you find solutions to challenges such as marketing, packaging, and human resources.
The key to knowing how much your UAE startup will cost is to choose which business setup type suits your business best. You can estimate the costs yourself, or clearly define them via a company formation specialist – the latter enabling you to plan a much more detailed future for your company.
About The Author: Rajesh Ambikan, Director Of Worldwide Formations.
Rajesh Ambikan is the Director of Worldwide Formations, which started with the aim to bring straightforward, no-hassle company formation services to the UAE. Prior to Worldwide Formations, Rajesh amassed many years of experience in UAE company incorporation, having worked as Head of Free Zones and Offshore Operation for Wenham Major, one of the UAE’s oldest and most prestigious accountancy firms. Rajesh also has vast experience of the corporate sector in the UAE, having held C-suite roles for companies in Abu Dhabi, Ras al Khaimah, Fujairah, and Dubai.