Business tips: Know these 10 expenses of starting a business and how to handle them
No doubt about it, starting a small business is exciting!
But it can also be confusing, particularly as you sort through all the expenses required to launch your enterprise.
While it is impossible to cover every type of business and go through the finer points of expenses you are likely to have, here are the top 10 costs of starting a business to consider. It all starts with creating a business plan which can be a full-blown traditional plan with monthly projections or can be formed using the Business Model Canvas (www.strategyzer.com) with limited projections, but specifically cash flow forecasts.
Formation
One of the first must-dos is to decide and apply for the business formation category through which you will do business. Will you start as a sole proprietor and use a DBA (does business as) or form an LLC (limited liability corporation) or a Sub Chapter S or C Corp? This decision will have tax, legal and financial implications. Filing fees can be from $50- $500.
Equipment
The equipment you’ll need is entirely dependent on the type of business you have. It could be as simple as a laptop computer or as complex as heavy, specialized machinery. For more expensive equipment, options include financing, leasing or even buying used as opposed to purchasing outright new equipment. The costs are dependent on the industry, type of business and the number of employees for which the equipment is being acquired.
Website
Gone are the days when you could be taken seriously as a business without a website. It is the digital front door for your business. The good news is creating a business website is more affordable and easier than ever, with hosting costs generally under $20/month and domain names (URLs) generally costing around $20/year. Fortunately there are services like Wix, Squarespace and Weebly that make creating a website relatively easy. Some like Wix have a premium monthly plan for around $40 per month or Squarespace at $25 per month. This assumes you can do it yourself. If not, you’ll have to hire a web designer, which can easily cost several hundred dollars to thousands upfront and a monthly maintenance fee.
Marketing/Advertising
You’re in business to generate revenue. And to generate revenue, you first need to build awareness of your brand, and get in front of prospects and turn those prospects into paying customers. This requires a marketing and advertising plan. The channels you use, and the cost involved, will depend on the type of business you have and where your ideal prospects spend their time. Most of the time, start-ups budget about 10% of their total business for marketing.
Inventory
Inventory isn’t something that every business has. Service businesses may have zero inventory. But if you carry inventory, you must figure out how to keep enough of your product on hand to fulfill orders, but not so much that you have capital tied up in excess product…money you can’t use for other business expenses or investments. This expense can range from 17% to 25% of your total budget depending on the type of business you are entering. At the beginning you might need more inventory on hand until you assess what steady-state might look like for your enterprise.
Consultants/Advisers/Independent Contractors
It can be tempting to try to wear as many hats as possible to cut back on operating expenses, but sometimes it’s best to turn work over to professionals. CPAs, accountants, lawyers and other professionals can wind up saving you money in the long run by doing technical tasks right the first time. This saves you not only time but headaches and frustration. This may cost the budding entrepreneur $1,000 to $5,000 per year. These experts can be worth every cent, especially in avoiding unnecessary expenses and risks.
Office Space
Unless you plan to work from home, you’ll need to pay for the physical space where your business gets done. This may mean a dedicated office, a storefront or a shared space, such as a co-working location. The range of cost can be from $100 per month to $1000 per month per employee depending on the kind of space that is needed.
Permits/Licenses/Fees
The costs associated with permits or licenses you will need to do business legally will vary based on the business you’re in, as well as your town. You may need professional licenses, or permits issued by the state or local government that allow you to operate.
Insurance
This is another one of those expense categories that’s going to be entirely dependent on your type of business. You may need insurance as protection against customer lawsuits or insurance that covers employee accidents, inventory in a warehouse or even the warehouse itself. Consider getting input from professional advisors who can help you determine what you need. General liability, commercial property, errors and omissions insurance products are all potentially needed by your enterprise. You may need to consider $1,000 per year especially with general liability insurance at $400-$800 per year.
Taxes
Don’t forget local, state and federal taxes which are all variable because they depend on your revenue. Under current federal law corporations pay 21% corporate income tax. Pass-through entities (LLC) can claim 20% deductions on income before paying their business taxes. It is a confusing situation and a good reason for having a CPA on your team to guide you, to minimize the amount of taxes you will be paying.
Contributed by Marc L. Goldberg, Certified Mentor, SCORE Cape Cod & the Islands, www.score.org/capecod, scorecapecod@scorevolunteer.org, 508-775-4884. Sources: ASK Score 2023, 14 Business Start-up Business Costs Owners Need to Know, Randa Kiss, Edited by Sally Lauckner, Nerdwallet.
This article originally appeared on Cape Cod Times: Business tips: Costs to start a new company. What should you know?
