Starting your own business is exciting. However, for a majority of entrepreneurs, it remains a dream. The reason for this is the huge startup costs involved in setting up a business. On top of that, you have to think of strategies to ensure the business remains afloat and doesn’t end up closing its doors after months of operation.
The amount of money can be overwhelming considering you have to purchase equipment, hire employees, buy software, and take care of the utilities. Yet they aren’t the only expenses you’ll come across. There are permits and licenses, insurance, inventory, and how can you forget about taxes?
These expenses are the reasons why you shouldn’t jump into business without a plan. You’ll drown even before you get your feet wet. In this guide, we’ll take a look at 11 startup costs you’ll need to consider.
1. Business Equipment
All types of businesses will need some form of equipment in order to enhance productivity and service delivery. You might need a truck for deliveries or computers and servers if you are in the technology space.
The type of equipment will vary from one business to another. This means the costs will also differ according to the size of the business and the number of employees on your payroll.
2. Incorporation Fees
When setting up your business, most needed thing is a certificate of incorporation. This means you need to decide on the business structure, which will determine how you’ll pay taxes. The business structure will also affect future realistic loans applications.
Incorporating your business means making it an independent legal entity. To get through this process, you’ll have to file articles of incorporation with the appropriate bodies in your state. Keep in mind this process requires some money.
If you have no idea how much money to set aside, visit the Small Business Administration (SBA) website for a breakdown of the costs involved in each state.
If you’re not looking to incorporate the business, you’ll still have to make applications for permits and state licenses. All this will depend on the type of business running and where you reside. For example, if you’re in the aviation and agricultural sectors, you’ll need federal licenses.
In contrast, businesses such as hairdressing and medicine require professional licenses. Those in the sales environment will have to get permits and sales tax licenses.
If you don’t know how to go about the licensing process, you can find more information through SBA. As you do that, prepare about $300 for the entire registration process.
3. Office Space
At some point, your business will need to grow and physical expansion is a form of growth. This means you’ll need to rent out office space or even buy one. With office space comes employees and with employees come salaries and other expenses.
Therefore, when thinking of expanding your business, remember to factor in these elements. Your average budget will range from about $100 to $1,000 each month for a single employee. Again, the amount will depend on the size of the office as well as the services you’ll provide.
However, you don’t have to rent out office space. You can avoid these costs by working from home when starting out. You can also collaborate with another business owner to share a certain workspace. This is much cheaper than renting and it can also bring more benefits through sharing ideas.
If you’re in the service industry, you might not need to set aside funds for inventory. However, if you’re in the distribution, manufacturing, wholesale, and retail sector, you’ll need some type of inventory to take off.
On the other hand, if you place a small order, you risk losing customers because not everyone is patient enough to wait for a certain product to get back on the shelves. If you’re in a seasonal business, the balancing act is even tougher.
In your financial plan, set aside at least 17 to 25 percent of the total budget to take care of inventory. Nevertheless, when starting out, you might want to look at the higher side of this figure. This is because you don’t want to turn down a customer because you don’t have the particular product they are looking for.
This is an important aspect of introducing and growing your brand. You might need business cards, banners, and signs to market your business. In addition, you can also go for paid ads or even get creative in this space.
However, according to business counselors, you don’t want to spend too much on marketing. In fact, they recommend keeping the total marketing costs at below 10 percent of the budget.
This is because when marketing, you’ll use different methods and you’ll want to get leads from each. If you aren’t, you’re losing out. Besides, you can do the marketing yourself. In this technological era, you can use social media to reach your target audience.
6. A Website
It’s crucial to have an online presence in today’s business world. For that, you need to come up with a professional website where consumers can interact with you. A website also provides critical information such as contact information and work hours, as well as the products and services you offer.
When searching for a product, many consumers start online, however, about 59 percent of small business owners lose out on this traffic because they lack websites.
With numerous tools online to help you create a website, it’s important for you to take advantage and land in the remaining 41 percent. Wix, Weebly, and Squarespace are some of the content management systems available in the game.
If you’re knowledgeable in the tech world, you can use these tools to build a website. If you aren’t, you’ll need to hire a professional.
Insurance coverage protects you against uncertainties and secures your finances. Just as you would purchase a home, car, or health insurance, you also need to insure your business.
There are various types of insurance policies, all depending on the type of business, what you need to insure against, the number of employees, and other underlying factors.
Businesses may differ, but there are basic insurance coverages every business needs to have:
· Commercial property insurance
· Errors and omissions insurance
· General liability insurance
· Commercial property insurance
This is probably the biggest drain on your finances. When starting out, you’ll need to pay your employees, even if the business doesn’t bring in much money. You are part of the business, so don’t forget to pay yourself.
Payroll is more than just salaries. It’s about overtime pay, stipends, commissions, and bonuses and this not a one-time thing. It’s all year-round. Financial experts recommend keeping the payroll at about 25 percent of the budget.
However, this figure will vary from one business to another depending on the type and size of the business.
9. Office Supplies and Furniture
If you’re operating a typical business, then for every employee you need to factor in a desk, a phone, a chair, and a computer. That’s not all. Other items include filing cabinets, a printer, papers, and computer software. As you can imagine, during this stage of the process you will see your costs skyrocket.
The costs, however, will vary from one business to another in terms of the size and type. On average, the total cost for office goods and furniture will be about $5,000 but try and keep these costs at 10 percent of the total budget.
10. Professional Consultants
When starting out, you’ll be an all-around employee for obvious reasons. Even at startup stages, you’ll still need some professional help. As your business grows, you’ll have to hire employees, but even then, this may not be enough.
Hiring professionals for various tasks can be quite helpful. For example, you might get into trouble with the law or need expert legal advice for major decisions. An attorney experienced in this field will help you a great deal.
You’ll also need the services of a Certified Public Accountant (CPA) to take care of the finances and to guide you through various legal structures.
What’s more, a CPA will also provide advice on the various programs to implement for your staff and when the tax season comes around, they’ll be there to hold your hand, thus saving you a lot of money in deductions.
Consulting professionals can be quite expensive depending on their level of experience. You can avoid these costs by handling the simple tasks and handing out the complex ones.
For example, you can use reputable accounting software for bookkeeping, creating and tracking invoices, and managing payroll. Preserve the complex issues such as taxes for the professionals.
Yes, taxes. How can you forget about this yearly cycle? It’s common for many entrepreneurs to leave out this crucial expense in their budgets. The taxes you’ll pay will depend on the revenues, business entity and deductible expenses.
Since predicting your revenues is almost impossible, you can consult with a CPA to help you determine the amount you need to save. This will save you time which is money in the long run.
For many entrepreneurs, funding is a great headache. In fact, it hinders most businesses from taking off. However, you can prepare for this by making a list of things you need and estimate the cost of starting the business.
By doing this, you will save a lot of time and money.