When starting a new enterprise, there are so many variables and logistics to consider that it can be hard sometimes to keep track of everything. However, one thing is for sure – you’ll need plenty of startup capital to ensure success. What will you need that money for, though? We’ve compiled a list of seven costs you should know before launching your brand.
Another point to keep in mind is that you’ll need comprehensive accounting practices to keep track of all your finances. Otherwise, it’s easy to misplace funds and get sidelined by various expenses. Remember, you likely won’t make a profit right away, so you have to plan accordingly. So, with that in mind, let’s dive into the seven initial business costs to consider when starting.
No matter where you live, you’ll have to file paperwork with your state and county governments. Depending on the business type you’re starting, you’ll have to get multiple permits and certificates. Here is a quick rundown of the various fees you might incur.
- Business Entity Type – You can form a sole proprietorship, partnership, LLC, or corporation. In each case, you have to file your entity type with your state. The cost varies from state to state and ranges between $50-$500. You can use an online filing service to handle this for you.
- Registered Agent Services – A registered agent is someone who acts on your company’s behalf and can receive official business-related mail. While you can act as your own agent, you may want to get a third party to be one for you. You’ll often pay for these services monthly.
- Seller’s Permit – If you sell products, you’ll need a seller’s permit. This permit ensures you’ll collect sales tax and report it to your state. Fortunately, this is a one-time fee and doesn’t need an annual renewal.
- Other Licenses and Permits – For example, if you’re selling alcohol, you’ll need a license to do so. Similarly, if you’re running a restaurant, you’ll need a health permit.
When it comes to business equipment, there are a few types of machines you might need, such as:
- Appliances – Restaurants need coolers and freezers, while offices might need refrigerators and coffee makers.
- Devices – Examples include printers, copiers, and computers.
- Vehicles – Will your employees need to make service calls? What about a cargo truck to haul equipment to job sites?
- Industrial – You may need machinery to run your operations, such as CNC machines and manufacturing equipment.
Overall, it’s best to list the specific machines you need to get started. Also, keep in mind that you might begin with a relatively small operation and then grow as you find new clients.
Another consideration is whether you’ll rent, lease, or buy your equipment. Renting or leasing is cheaper upfront, and you don’t have to pay for equipment maintenance. However, since you don’t own the machinery, you’ll pay more in the long run.
Even as a small business, you’ll likely need employees to run your operations. So, you have to consider the costs of paying your employees. Setting a budget can help you stay on target, especially if you’re not earning a profit yet. Remember that you have to pay your workers no matter what. So, even if you don’t get money from clients right away, you can’t withhold funds from your employees.
On top of their wages, you also have to consider the cost of payroll services. Since it’s so hard to manage the payroll on your own, hiring a service to send checks and itemize each line item is much more convenient. Consider how these costs can affect your operating funds.
Finally, you might have to weigh the pros and cons of hiring a manager to handle operations. While you can save money by doing it all yourself, you can only do so much. Having managers or supervisors can enable you to take on more tasks and responsibilities, expanding your operations and increasing your bottom line.
No matter what, you always have to plan for a rainy day. If something terrible happens, can your business recover? With insurance, it can. Otherwise, you’ll have to pay lots of money out of pocket, putting you on the brink of bankruptcy. There are several forms of business insurance you should consider, such as:
- General Liability Insurance – This coverage pays for lawsuits related to personal injuries or property damage that occurs to other people while on your business property. This policy does not cover you and your employees.
- Property Insurance – Protect your building from damage from people, vehicles, and environmental incidents. However, you have to buy separate policies to cover floods and earthquakes.
- Business Income Protection – This coverage pays if you can’t make money while your business undergoes repairs after a covered peril. For example, if a telephone pole crashes through the roof of your storefront.
- Professional Liability Insurance – If you sell products, you should get this insurance to protect claims of injury or damage caused by those products.
- Worker’s Compensation – Employees can get injured on any job, whether it’s an office environment or a factory. If that happens, liability protection won’t kick in. Instead, you need this insurance to avoid expensive lawsuits and medical bills.
Even if you’re running a business from home, it helps to have a dedicated office space to handle work-related tasks. Fortunately, it’s pretty easy to find office space for rent, no matter where you live. The monthly rent for your space depends on factors like:
- Size – Bigger offices cost more than smaller ones.
- Location – High-profile areas will be more expensive, but they might also be more convenient, especially for meeting clients.
- Office Type – Do you just need four walls and a roof, or do you need warehouse space as well? Mixed-use offices are often more expensive.
These days, all businesses need a high-quality website. Even if you don’t sell products online, you need a site to connect with your customers and show off your brand. Plus, if you’re investing in any marketing materials (which you should), a website is essential in capturing new leads and converting them to customers.
Fortunately, it’s pretty easy to build a website, thanks to platforms like Wix and WordPress. However, if you’re not savvy about such things, you’ll need to hire a web developer, which can get kind of pricey. Before hiring anyone, though, be sure to have a list of must-haves. For example, if you sell products online, you need a payment portal to handle transactions. Having this list ready ensures you can get a fully functioning website faster.
Finally, you have to buy the inventory to start your business. In some cases, this inventory might be products to resell. In other instances, you may need to purchase raw materials to make products (i.e., food dishes or crafty items). Either way, you need to supply yourself with enough to make your initial batch while avoiding inventory mistakes. From there, you can use your sales income to buy more inventory, and so on.
Another point to consider with inventory is finding the best suppliers. That way, you can provide better products for your customers, leading to higher sales and a stronger bottom line.
Overall, you should attach a dollar amount to each of these costs. Also, consider how long it might take you to earn a profit since you’ll have to cover your expenses out of pocket until then. The more planning you do, the easier it is to succeed.