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If you’re thinking about starting your own business, or even if you’ve already begun the process, there are several costs that you need to consider in your budget. It’s easy to overlook some elements that could prove to be costly later on. Going through the list below will help you ensure you’ve thought of everything and avoid nasty surprises.
1. Incorporation fees, licenses, and permits:
These are the upfront costs associated with legally establishing your business. Ensure you research and obtain all necessary permits and licenses to avoid legal issues. Every state has different requirements, so it is advisable to get professional advice when starting a new venture.
2. Insurance and surety bonds:
Insurance is crucial for protecting your business from unforeseen risks. Understand the types of insurance relevant to your industry, such as general liability and workers' compensation, to safeguard against potential financial losses. Also find out whether you need to purchase a surety bond, as these can be a significant initial expense. According to bplans.com, surety bonds can cost up to $20,000.
3. Equipment:
Equipment costs will vary considerably depending on the type of company you are opening. Carefully evaluate your equipment needs, taking into account any tools or machinery you will need to run your business. You’ll need to balance quality and cost to ensure efficiency without unnecessary expenditure.
4. Inventory:
Inventory costs involve purchasing and managing the goods you sell. Strike a balance between maintaining adequate stock levels to meet demand and avoiding excess inventory that ties up capital. Randa Kriss, business writer for Nerdwallet, recommends setting aside 17-25% of your total budget for inventory.
5. Storage, warehousing, and shipping:
If your business involves physical products, consider the costs associated with storing, managing, and shipping inventory. Many startups overlook the risk that products may not move as quickly as expected, especially in the first months of opening the business. This means greater storage needs and potential loss of products. Optimizing your logistics strategy can help minimize unnecessary expenses.
6. Office space, supplies, and utilities:
Securing an office space comes with rent and utility expenses. Assess your space requirements carefully, considering remote work options and shared office spaces to control costs, especially in the initial stages. When furnishing your workspace and purchasing supplies, it’s a good idea to prioritize essential items and gradually invest in additional items as your business grows.
7. Payroll:
Employee salaries and benefits are a significant portion of business expenses. You will need to carefully manage your payroll budget, considering the balance between attracting skilled talent and maintaining financial sustainability. Kriss recommends allocating 25-50% of your total budget to employee payroll.
8. Marketing and research:
Marketing is crucial for business visibility and growth. Kimmy Paluch, managing partner and head coach at Beta Boom, advises founders not to neglect this essential part of building their business.
"It's not just about creating an incredible product that meets a clear need, but making sure that you reach the audience that wants to buy it," Paluch explained in an interview with Legalzoom. Remember to allocate funds for targeted marketing strategies and research to understand your target audience, ensuring your efforts are effective and aligned with market trends.
A professional website is another key way to build your brand presence. Don’t forget to budget for website development and maintenance.
9. Transaction fees:
Something that is often forgotten is the cost of receiving payments for your products or services. Accepting credit card payments may involve transaction fees. Make sure you understand the fee structure of your chosen payment processor and factor these costs into your pricing strategy to avoid impacting your profit margins.
10. Professional consultants and legal services:
Professional consultants, while they may seem costly, are the best way to ensure that you do things right the first time around. Professional accountants, legal advisors and other consultants can ensure compliance with regulations and offer strategic guidance. While these services have associated costs, they can save you money in the long run by preventing legal issues and providing valuable expertise.
11. Taxes:
Understand your tax obligations and plan for tax-related costs. Corporate entities pay 21% income tax under federal law, and individual states may charge additional taxes. Consult with a tax professional to optimize your tax strategy and take advantage of available deductions to minimize the financial impact.
12. Travel, professional development, and networking:
Budget for travel and networking events to build valuable connections and stay informed about industry trends. Additionally, allocate funds for professional development to enhance your skills and contribute to business growth.
13. Expansion and scalability:
Planning for future growth involves investing in research and development, infrastructure, and additional staff. Consider scalability in your initial budget to position your business for expansion when the time is right.
14. Maintenance and upgrades:
Regular maintenance and occasional upgrades to equipment and facilities will be needed for sustained operational efficiency. Factor these costs into your budget to prevent unexpected disruptions to your business. While this is more of a long-term expense, it’s important to plan ahead.
15. Unexpected Expenses:
Unfortunately, every business will be hit by additional expenses, which may be hard to predict now. For example, inventory shrinkage through theft and loss costs retail companies billions each year. Business owners can mitigate this cost by incorporating it in their budget as well as implementing robust inventory policies.
Payment delays are another common issue that can impact your cash flow. Create clear invoicing and payment policies to minimize delays, and consider negotiating favorable terms with suppliers to manage this aspect effectively.
Conclusion
Starting a business demands careful planning and budgeting. From the essential initial steps to unforeseen challenges in the future, each step of your business’s journey needs to be considered. Striking the right balance between spending wisely and making strategic investments, especially in areas like marketing and future growth, is key. It’s also important not to overlook the smaller details, as they can impact your bottom line. Ultimately, a strong, well-planned budget will help you avoid unnecessary risks and set the foundation for a successful business.
Sources
This article was originally published in Certainty News [link to article page]
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