6 Important Business Startup Costs You Just Can't Ignore
Starting a business and creating a business plan is a great example of that old saying: The more you know, the more you know you don't know. With that in mind, what are some of the sneaky one-time expenses you may incur before opening your doors and earning income?
Be sure to account for these one-time startup costs as you develop your plan:
1. Sizing up your market with developmental research.
Unless you're looking to open the only frozen yogurt store within a twenty-mile radius in your always-sunny Arizona town, the potential success of your venture may be less obvious and call for some market research. Who might be your competitors? What are the local demographics? A market research firm can help you make an accurate assessment.
Cost:
Varies widely according to industry, work performed, and size of the sample being analyzed, though experts suggest budgeting $15,000 to $30,000.
2. Creating a business entity.
Your business entity is, in essence, your firm's legal and taxation structure. The most basic form is the straightforward "DBA" or" doing-business-as" sole proprietorship, which means filing with your county or state and paying taxes through your Form 1040 federal tax return. On the other end of the spectrum, a full-fledged C-corporation calls for board members and a discrete corporate tax return, while also offering a firewall between your personal and corporate assets.
The Small Business Association (SBA) provides a host of useful information on these and other options, along with a state-by-state directory of requirements.
Cost:
A DBA filing can cost as little as $10, depending on your state or municipality. While hiring an accountant or a lawyer to form an LLC, S- or C-corp may add up to several thousand dollars, depending on your location, industry, and the complexity of the filing.
3. Establishing your website other communications channels.
Small-business marketing and advertising is all about a great website, a strong social media presence. And yes. If you're a retail establishment, you'll be investing in signage, brochures, and other collateral.
Costs:
Buying a web domain and hosting services can cost as little as a couple hundred dollars to get started, depending on the service you choose. Many services, like GoDaddy, Wix, or Squarespace, have become simple enough through drag-and-drop functionality to enable anyone who has the time and patience to buy and design their own site — even with e-commerce features.
A professional web designer can set you back as little as a few hundred dollars for a no-nonsense freelancer to thousands of dollars for a web-design firm. Depending on your needs and your budget, either can be a wise investment.
Setting up an Instagram or Facebook account is free — unless you hire a social media maven to start you off with your posts. In that case, the same cost issues as web designers apply.
4. Getting liability and property insurance
Beyond property and liability coverage, certain industries have more niche options and requirements. Errors and omissions insurance, for example, can protect businesses from construction firms to freelance writers in the case of a legal challenge in an increasingly litigious business environment. What's more, in many types of businesses, you must present proof of coverage to win a contract. Cost: Consult carriers for the best quote based on your needs. A business policy from Lemonade for your home-based business can set you back as little as $15 to $20 a month, while high-level liability insurance from Chubb or Hiscox can get you well into four or five digits annually.
5. Leasing (and building out) your space
Renting business space is much like renting a home. You'll be looking at first and last months' rent, and a security deposit. But unlike a home rental, commercial leases can extend well beyond one year — in fact, that's preferrable, to ensure you don't become subject to a sudden rise in rent.
Another key different between renting a home and a business space is furnishing it. Depending on the nature of your business, you may need to "build out" the space — the term for equipping it with dressing rooms, bars, serving stations, or whatever else your specific business calls for. For example the cost of building out a new restaurant can range from $100 to $800 per square foot.
6. "Week One" Payroll
If you've hired employees, you'll need to pay them even if your business isn't generating money yet. In addition, be sure to set aside your own paycheck. Payroll costs include:
Sales commissions
Benefits, such as health insurance, paid time off
Processing services, from ADP, Paychex, or a similar firm
How "ongoing' and "one-time" expenses intersect
Note that when you're calculating startup expenses, ongoing costs still come into play, as you may have noticed with some of these items. A smart best practice is to include six months of ongoing expenses in a given category as a startup cost. For example, if you'll be paying a web developer $5,000 to design and build your site, and the monthly maintenance cost will be $500, you'll want to budget $8,000 as your website startup cost.
It's essential to compute these often-neglected startup expenses. Once you do so, you'll find yourself in a much better position to seek funding from lenders and turn your business dream into a profitable reality.
Did you know?
More than half of business owners polled say they underestimated their first-year business expenses
Source: Business.org
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