Starting a business in most cases requires lots of money. Since most entrepreneurs don’t have the backing of rich investors from the very beginning of their startup adventure, business costs require careful planning and constant audits. Many business owners neglect minor costs, at least until they pile up and lead their company to liquidation. When it comes to business finances, the devil is in the details. In this article, we will present some of the costs entrepreneurs cannot avoid paying in the first phases of their companies’ development.
Before you incorporate your company, you need to conduct several important types of research and produce a solid business plan. If you are not a market research expert, and you do not have solid writing skills, this will probably be the first expense you will need to pay, at the very beginning of your business project.
Although every business is different, there are a few generic costs that are common for all new companies. Of course, you can do some of these tasks yourself, which will save you some money, but you will definitely need to pay at least some of the expenses from this list:
- Competitive research costs;
- Business plan writing costs;
- Expenses for creating your company’s visual identity;
- Expenses for building company’s website;
The Cost of Starting a Business
After you develop your business idea, you need to spend a significant amount of money for incorporation and for making your company legal. In most countries, new businesses are legally obliged to obtain special licenses and permits. The costs of the licenses may vary depending on the business or the state in which you plan to incorporate it.
Apart from license fees, you might also need to pay special bonds that ensure the quality of products or services your business will offer to consumers. For example, if you are opening a service business in the United States, you also need to calculate the surety bond cost into the overall price of licensing your business.
Insurance is a very important business segment. Buying one or a few insurance policies guarantees that your company will not suffer from unfortunate events. You may purchase specialized policies that cover the main risks your startup is facing. Still, there are five insurance types every business needs. These include:
- Liability insurance;
- Property insurance;
- Workers’ Compensation insurance;
- Product liability insurance;
- Business interruption insurance;
Production Equipment, Raw Materials, and Product Supplies
Every business requires various kinds of equipment. Even the freelance programming tasks you do from home require you to buy a personal computer and one or a few premium software packs. When it comes to more expensive production equipment, you can buy it or lease it. Leasing business equipment comes with the higher overall costs, but it is a very scalable solution that allows you to control your costs and adapt them to your business success.
Combined with raw materials, these costs can easily pile up and eat up a large portion of your first earnings. If you are running a retail business, you will also need to buy products you are going to sell in advance. You can save money by buying them wholesale, but even then this will probably be the biggest investment you are going to make in the first phases of your company’s development.
Although you can use social media and various guerilla marketing tactics for free promotion, one day or the other you will need to pay for some type of advertising. Startups mainly use the benefits of social networks and search engines, which offer effective targeting and customizable campaigns at very affordable prices (at least compared to the TV advertising).
If you wish to promote the company yourself, you will only need to pay for the social media, search engine, and affiliate network advertising costs. Entrepreneurs who do not have the time or skills to create and run their marketing campaigns, usually outsource these tasks to marketing agencies. This will drastically increase the costs of your business, because marketing services are very expensive at the moment, due to a huge digital marketing craze that has been present in the last couple of years.
These are just some of the costs you will need to calculate if you wish to start a business. After some time, when your business starts to grow, you will probably need to hire some employees, so payroll is another very important cost you should have in mind. At the same time, you will also need to rent an office space that will allow your team to focus on their work.
Seek Professional Help
Opening a business is a great experience, but you cannot let yourself get caught in the excitement and neglect the details. If you have problems with startup finances, you can always ask for professional help and hire agencies that will determine your budget and calculate your costs.