By Bert Seither, small business consultant
About the author: Bert Seither is a longtime small business consultant. He has assisted thousands of small business owners to find a path to entrepreneurial prosperity in his 10+ years of experience. Learn more at www.bertseither.net.
We all know that the startup phase of a small business is incredibly time-consuming. However, it can also take a gigantic bite out of your budget. This is why having a solid grasp on these initial company expenses is a must. Consider asking yourself the following questions to obtain a reasonable estimate of your startup costs so you can plan how to cover them:
1) What business structure do you plan on adopting or already have?
Registering a small business entity with your state’s office comes with a fee. Although it may not cost a ton, it is certainly worth including it with your startup costs. Registration fees generally apply to entities that include LLCs and corporations. On the other hand, if you adopt a more informal structure like a sole proprietorship or partnership, you may not be on the hook for such a fee.
2) Do you plan to or currently work from home or from another location?
Working in a home office and working from a separate place are two completely different approaches to take when operating a small business. The expenses tied to each of these options can also vary greatly. With a home office, you can save lots of money by avoiding the costs of rent, insurance, utilities, and other expenses associated with maintaining a different business location. Many home-based small business owners already have everything they need – office supplies, computers, and furniture. Business owners in offices or retail locations often incur additional costs on top of what they pay for their personal living expenses. Estimate these amounts to determine what you’ll owe in startup costs based on where your business actually functions.
3) What items/services are required for you to actually conduct business?
Every small business out there must pay for a wide range of items and services to stay in business and make money. For instance, do you need a work laptop and special software? Do you need separate Internet access, a separate cell phone, or an accounting firm to assist you? Should you invest in a digital sign to put up above your storefront, or do you prefer investing in a website with high-quality graphics and videos to promote your company? Whether it’s an item you can touch or an intangible service, many of these costs fall under the startup expenses category. You should write down every one of them to get a reasonable expense figure. Since some of these are only one-time costs and some are ongoing, make sure you take this into consideration.
4) What items or services do you sell?
Production costs for a particular item are often high, which is why you need a firm grasp on how much it would cost to produce an item, where it is produced, and the amount you plan to design. If you offer services, be certain that you cover the costs of both time and money spent on offering them to set reasonable rates for customers. This can help you get a solid return on your investment by keeping these numbers in the back of your mind. Consider shopping around when dealing with manufacturer costs. The goal is to get the highest quality product at the most reasonable price. This can reduce your startup costs both initially and going forward.
One thing to remember is that many startup costs are tax deductible when filing your business taxes with the IRS. This deduction is another great way to reduce your tax liability and keep more of your hard-earned income.