Not only is launching a brand new small business very time-consuming, but also it can be quite costly. This is why having a good handle on the startup costs of a company is a must. Bert Seither, who assists small business owners in putting them on a path to success, suggests asking yourself these questions to get a rough estimate of your startup expenses:
1) What type of business structure will you have?
Registering a formal business entity with your local state costs money. Even though it may not break your budget, it’s certainly worth lumping into the category of startup costs. Registration fees typically apply to businesses like corporations and LLCs. If you take a more informal structure like a sole proprietorship or partnership, you may not be required to pay such a fee.
2) Will you work from home or have a separate location?
Working out of a home office and working out of a separate location are two very different approaches to take when starting a company. Because of this, the costs associated with each of these options are also quite different. If you work from home, you can save some money by avoiding the costs of rent, insurance, utilities, and other expenses related to operating your business out of a different location. In fact, home-based business owners may already have everything they need in terms of office supplies, computers, desks, and other tangible items. Business owners working in office complexes or in retail stores often incur additional costs on top of what they’re paying for their personal costs of living. You should estimate these amounts to get an idea of how much you’ll owe in startup costs according to where your business is based.
3) What items/services will you need to run the business?
All small businesses have to pay for a wide array of items and services in order to stay in business and be profitable, Bert Seither says. For example, will you need a separate work laptop with special software on it? Will you need separate Internet access, phone service, or even an accounting firm onboard to help your company run smoothly? Will you need to invest in a digital sign to put outside your store, or will you opt for a flashy website with cool graphics and high-quality videos to promote your business? Whether it’s a physical item or an intangible service, many of these expenses fall under the startup costs umbrella, and you should write down each and every one of them to make a reasonable calculation about them. Remember that some of these are one-time costs and some will be ongoing.
4) What items/services will you offer that cost money to produce?
Production costs can be quite hefty, so you should have a firm grasp on how much it’ll cost to make your products, where they’ll be produced, and how many you intend to create over a given timeframe. If you plan to sell services, make sure you cover the costs of both time and money spent on providing these services so that you can set reasonable rates for them, while also getting a solid return on your investment. Bert Seither recommends shopping around when dealing with the costs of inventory and other things so that you get the best deal and the best quality at the same time in order to reduce your startup and ongoing business expenses.
Keep in mind that many startup costs are tax deductible. When making your calculations, don’t forget that you should be able to write off some of these expenditures to reduce your tax liability and help you save more of the hard-earned revenue your business generates.