Starting a business means creating an opportunity to earn income from the services or products you can offer. To get to that point, you'll likely have numerous expenses just to get the doors open. That's to be expected but knowing what to spend money on and how much to put aside to cover those costs isn't always easy to do.
There's quite a bit of flexibility when it comes to business expenses. The type of business, your location, and the overall costs of providing services will range widely. Yet, there are some business expenses most organizations will have.
Before launching your business, consider the following common expenses, including what you may not have thought about. Know that planning for these costs now could help you avoid financial turmoil in the coming months.
#1: Research Costs
Before you can launch a business, you have to know it's a worthwhile endeavor, one that can prove to be profitable for you in the future. You also need to understand the competition, price points, and the overall economic condition within your area that could impact your overall business success. Research costs, then, are a big first step.
These are often costs related to researching the potential for your business, such as conducting market research. They can include:
● Analyzing existing products or services within your market
● Determining labor supply locally
● Developing a plan for transportation costs
● Uncovering concerns with raw materials
● Understanding the expenses of working with suppliers and distributors locally
Market research costs range widely from a few thousand dollars to tens of thousands depending on the extensiveness of your investigation. Ensure that, if you are investing a lot of money in your startup that you have invested first in research.
#2: Business Plan Creation
You do not have to pay money to create a business plan. The U.S. Small Business Administration provides tools and tips to help you create one without cost to you. However, many startups need the services of a professional to do this.
The key here is that you invest time or money into developing a highly accurate business plan. That should outline what your product or service is, the competition, financials, and all other details related to establishing your business.
With this information, you can then make better decisions for how to build your business moving forward. It may also help you to get loans and partners to help support your new venture. If you purchase these services, they may cost between $50 and $500, and sometimes more, to complete.
#3: Startup Materials
Take some time to research the cost of the materials you need to establish your business. This will vary significantly from one industry and area to the next. Some of the research you need to do focuses on these areas:
● The cost of raw materials or inventory
● Supplier or manufacturing contract costs
● Patent costs
● Online website or platform development
● Equipment and furnishings to establish your location
● Initial deposits for securing property to lease or buy
● Initial costs for hiring employees
These are very specific to your area. You need to have an idea of what to expect, though, before you launch your business. Conduct some research or hire a team to help you to gather this information. That way, you know how much capital you need to have to operate your first months.
#4: Business Formation Costs
You do not have to spend any money to create a sole proprietorship. There is nothing to do here - just open your doors. However, most companies will find that this provides them with significant risks and limitations. Business formation, including becoming a Limited Liability Company (LLC), could provide far better resources.
LLCs have liability protection. That means your personal assets are not at risk if someone sues you or your business fails. At the same time, LLCs are also taken seriously and treated with more recognition by some clients and customers. Making the move to form an LLC is nearly always a wise step.
The cost of business formation will differ from one area to the next. Typically, the LLC formation costs will range from $50 to $500 to establish your business within the state. Business formation can be done by you, or you can hire a team to do it for you. That can ensure it is more efficient and done properly so that you get all of the benefits needed.
#5: Insurance, Licensing, and Permit Fees
Another cost most companies will need as they start up is insurance. Insurance can help in a number of ways:
● Protect your assets from vehicles to the property you need to operate your business
● Minimize liability risks associated with claims made against you
● Reduce risks associated with employees hurt on the job
● Provide financial protection from product failures
● Protect against cybersecurity risks or identification loss
● Safeguard operations from claims made by third parties
The cost of insurance is dependent on your business type and location. The amount of risk in your business plays a role in how much insurance companies will charge you. Adequate insurance coverage helps ensure your business can remain open and operational when incidents occur, though.
In addition to insurance, many companies need to pay for licensing and permitting. Again, this is very dependent on location (often based on the city you operate in). License and permit requirements also differ based on your business type.
You may need a permit to operate in the city or to complete specific projects. Other times, licenses are a requirement in order to provide services to customers or to sell some types of products. Costs will range from $20 to $200 or more, depending on the specific needs of your business.
#6: Accounting and Technology Costs
Most modern companies need access to resources to collect funds and process purchases from customers. This starts with a point of sale (POS) system or software solution. You may wish to purchase a ready-made solution that offers a plug-and-play system that you can adapt to fit your company's needs. Later, as your business grows, you may benefit from a more streamlined, customized solution designed just for your company.
Accounting software is also important. It allows you to record expenses and revenue so that tax management later is more efficient. You can expect to use basic accounting solutions for a limited amount of time, especially if you need to collect sales tax and pay employee wages.
The cost of modern technology is dependent on how advanced your needs are. These can cost $1,000 up to tens of thousands for larger operations.
#7: Marketing and Promotional Development
As a business owner, you have to tell others about your company and the services you offer. To do that, you need marketing. There are many ways to get started with this process that does not have to be highly expensive but hiring a professional to help you will increase costs overall.
Your costs may include the following:
● Establishment of a website and blog for your business
● Creating social media websites
● Brand and logo design costs and services
● Paid advertising online and offline
● Search engine optimization and digital marketing costs
● Print publications for local customers and clients
● Text messages and other direct communications tools like email marketing
Start small and work up to more elaborate and efficient solutions for marketing your business. You may have to make a big splash with a brand kickoff or an online event to draw in your first customers and get your brand out there. Over time, you may need to build up your marketing to better meet your growing ability to meet customer goals.
What Other Costs Should You Consider?
Most companies will find other costs that could be a factor in opening their doors, such as:
● The cost of labor (hiring employees) in your area
● Initial tax accountant fees
● Contract development and attorney costs
● Cash flow to keep your business in operation
● Utility costs
● The cost to borrow money to start your business, including fees and interest
● Legal costs for drafting partnership and vendor agreements
There's quite a bit to think about when building your business. However, when you take the time to research each of these areas, you can begin to create a plan to move your business forward. You don't have to worry about the cost because you'll have a plan in place to cover them moving forward.
