If you’re thinking about starting a new business, side hustle, or grind, you’ve got to know what you’re getting into. Every business will incur startup expenses in the beginning and you can’t just expect that customer sales will keep fuel your fire. The reality is, you'll need to come up with some investment capital. In the beginning, a new business is a lot like taking care of a child. It will require much of your attention, time, and will need to be fed (with money). Before making the decision to jump into a new venture, plan for your success by evaluating some of the common business expenses you are likely to incur.
Business Licenses & Permits
When you start a business, you must be given permission to conduct business in your area. This is usually done through a license or a permit which may be issued by your state, county, or local municipality (maybe even all three depending on where your business is located). If you work in a profession or specific industry, you may also need additional professional licenses to start your business. For example, cosmetologists typically need a cosmetology license before they can start working. This is no different for doctors, lawyers, CPAs, engineers, architects...you get the point.
Be sure to take zoning ordinances into consideration to ensure you can operate your particular business in your preferred location (or home), and if necessary, know the application process to obtain a variance. If you’re not approved, don’t risk it. If you move forward without the necessary licenses & permits you can get shut down without notice and may even have the embarrassing experience of a sheriff visiting your home or business.
Other permits you may want to consider would include sign permits, where there may be restrictions on the size, lighting, and location, of signs used to promote your business and attract customers, sales tax licenses, heath department permits, air and water pollution control permits, and fire department permits. All of these permits and licenses will depend primarily on what services are being provided and what materials are being used. Research which apply to your new business and account for their cost in the beginning.
Office Space & Utilities
After you’ve decided what business you wish to run and have received the respective permits, you now need to decide where you will make your business-home turf. This could be in a building, an office, or part of your home. You need to evaluate the cost (rent or mortgage) of each including the sacrifice sacrifice of space if working out of your home. After deciding on where you’re going to operate and how you’re going to pay for that space, you also need to take into account the utilities (electricity, gas, water, sewer, and internet) which will now become recurring expenses. Again, do your research and plan for these expenses. They will be recurring for as long as you use the space for your business. You may also want to use the services of a trained real estate attorney to help you achieve the most favorable lease terms if you are leasing a property. Final note, commercial property is usually more expensive so make sure you are using practical lease & mortgage rates when preparing your analysis.
Depending on what type of business you start, there are a multitude of insurances to consider. Primarily, you will want to cover the business with general liability and the owner(s) with long-term disability in case you are injured and can’t work. Then there are the additional considerations such as health insurance, workers’ compensation, and life insurance. If you have vehicles you may also need business auto insurance and if you hire employees you may need to provide them with insurance. First and foremost, take care of the business and the owner(s) from unexpected events. If you want to be extra cautious, you can look into business interruption insurance, which pays if you can’t use your business location for a period of time. That may be more practical if your business operates in a location that is prone to environmental hazards. Finally, there are also specialized insurances such as malpractice or product liability insurance. All insurance considerations can be made when working with a trusted insurance agent but be sure to confer with your CPA or attorney before signing any agreements.
Hiring an accountant or a CPA is a good idea, not only to run payroll and prepare tax returns, but also to help keep your revenue and expenses squared away and your books balanced. In addition, the best advisors can provide advice and guidance when the going gets rough or when you are ready to expand your operations. Other services to consider include an attorney, insurance agent, and a financial planner (for when the money is really flowing!). A business attorney is beneficial in many ways such as drafting and negotiating contracts, and employee issues and litigious matters that may arise. Vetting one out before you need their services will save you time and money in the long run.
Advertising & Marketing
How are you going to generate sales if no one knows about your business? You must invest time and money into advertising and marketing your business. Plan for some expense for social media, promotional materials, advertisements, and website startup & maintenance costs. This may become one of your larger expenses over time but will also help you generate significant revenues in the long-term if done correctly. Research what your competition is doing with their businesses and mirror those that are successful for best results.
Equipment, Supplies, and the Miscellaneous
Lastly, it is important to have the gear on hand to run and operate your business. Most businesses need a computer and possibly a tablet and smartphone. Others may have larger needs such as large pieces of equipment or machinery, 3D printers, or an exhaustive array of tools. Some of these expenses will include one-time purchases with maintenance fees, and others will be recurring such as office supplies, job materials, and subscription fees. Make sure you do your research and purchase only what you need to get started, you can always scale up later! Some pro advice here, if you want to save money, buy used (but reliable) machinery and equipment. You don’t need brand new everything when you’re starting out; you just need to be able to get your work done.
If your goal is to become a successful small business owner or entrepreneur, be prepared so you don’t get blind-sided by the big or little expenses that will come your way. As of this writing, you can still deduct the first $5,000 in business startup expenses on your taxes. My recommendation is to plan for at least that to start your business. You may need more, you may need less, but nickel and diming your startup costs is not how you will make it big running your own business.
Now that you have a great business venture planted get ready for the real adventure which lies ahead! And as always, ask for help when needed, we’re always here!