Know one of the hardest parts of starting a business? (Relax, we're not going to say accounting.) One of the hardest parts of starting a business is getting a grip on the expected small business startup costs. Said differently, what's it going to take to get this thing off the ground?
Read on for a crash course in what small business startup costs you need to consider...
Before you open your doors for business, there are a few one-time costs you’ll need to take care of. First up are the applicable legal and registration costs, which will vary depending on how you’ve chosen to set up your business and where your business is located. A lawyer can help with this process. If you’ve never hired a lawyer before, shop around for some quotes, while making sure to find someone who’s well versed in your particular line of business. (Keep in mind that this blog post is not meant to be taken as legal advice!)
Other one-time small business startup costs will depend on whether you’re operating an exclusively online business, or setting up shop in a physical location. If it’s the latter, then purchasing or renting your space and paying for signage and any required repairs would be among your one-time start-up costs. For an online business, you’re looking at costs for web development, and there are going to be initial costs for inventory and equipment involved if you’re selling a physical product, whether it’s through your website or in an actual store.
Making sure you have enough seed money to cover your one-time start-up costs is an essential first step in planning your company’s financing, but you’re going to want to figure out your ongoing small business startup costs as well since most of them will be on the books from Day One.
Ongoing costs include fixed expenses like rent, insurance, administrative costs, and utilities (as well as salaries, if you have a staff to pay). There are also variable expenses that will fluctuate over time, like shipping and packaging costs, inventory, and storage costs. Try to account for as many of these ongoing costs as possible when taking stock of your start-up expenses, so that you can put yourself on as solid financial ground as possible once you’re officially open for business.
Mapping Your Expenses
Once you’ve figured out what your one-time and ongoing costs are, it’s time to map them out to make sure you have the financing in place to cover your costs. A simple worksheet is a great place to start mapping out your expenses and assets. (Remember, assets are resources owned and controlled by your company which have the ability to bring future financial gain. Examples include physical items like equipment used to manufacture product as well as intangible things like intellectual property.)
To give yourself a bit of a cushion, add in a category called “Other Expenses” and allocate 5-10 percent of your budget just in case other costs crop up (which they will).
While there’s no one-size-fits-all formula for calculating your start-up costs (just as there’s no universal method to secure financing for starting your business), it’s worth spending the time before you open for business to tabulate your one-time and ongoing costs. This will help paint as realistic a picture as possible of your business’ finances.