Start-Up Costs for a Business

An important initial step for budding entrepreneurs is to properly forecast the start-up costs for a business.

An important initial step for budding entrepreneurs is to properly forecast the start-up costs for a business. These expenses can vary widely based on the type of business. A failure to recognize key start-up costs could seriously impact the viability of your fledgling venture. Aside from keeping your new business afloat, accurately determining your start-up expenses can also help you in drafting an effective business plan, seeking bank loans and investor funding, and assessing potential tax deductions. In considering start-up costs, you will need to estimate both one-time and recurring expenses. Here are some major expenditures you will need to figure out before launching your new business.

  • Structuring Your Business. Initially, you will need to decide what type of business organization works best for your new business. It makes sense to engage and consult with a CPA, lawyer, or other business services provider to help you investigate, select, and properly register your business organization as well as obtain a tax identification number. These professionals may be able to assist you with business, liability, financial, and tax strategies that may save you time and money both at the start and during the life of your new business. In addition, if you decide to seek franchising opportunities, it may be important to seek legal and financial assistance in reviewing the franchise agreement to better understand your obligations and to protect your interests.
  • Obtaining Licenses, Permits, and Insurance. Many businesses are required to obtain business licenses or other permits from government agencies before opening their establishment. Depending upon the industry, these licensing and permitting obligations may require compliance with federal, state, and local regulations. Furthermore, you should consider the expenses of insuring your business and protecting your personal assets, whenever possible.
  • Renting or Buying a Business Location. Depending upon your business, you may decide to rent or buy a business location to provide your products and services or to store your inventory and equipment. Establishing a physical location involves both one-time outlays, such as security deposits or closing costs, and recurring expenses, such as rent, mortgage payments, and utilities. Initially, your business location may also need to be repaired or renovated to meet your requirements and you may have to bear some or all of those charges. Calculate both the one-time and continuing expenses of your business location when estimating your start-up expenses.
  • Obtaining Furniture and Equipment. Unless you want to sit on the floor, you may need to lease or buy office furniture for yourself, customers, and employees as well as filing cabinets, shelving, outdoor business signs, and displays. Your equipment needs may vary depending upon your industry, but some items such as office computers and software or construction and manufacturing equipment could be quite costly. You may find some cost-savings in renting or buying used furniture and equipment, but consider whether these pre-owned items will meet your business and safety needs. Keep in mind the costs of maintaining your furniture and supplies.
  • Purchasing Inventory and Supplies. If you are selling products, you may need to buy an initial inventory to meet vendor minimum order requirements and replenish that inventory over time to keep up with customer orders. Even if you are running a service business, you will need some supplies whether its doggie treats for your dog-walking service or cleaning supplies for your housekeeping or auto detailing business. Keep in mind that you may also need to estimate office supplies, such as paper, ink, toner, and pens and pencils in virtually every business enterprise.
  • Advertising and Marketing Your Business. Today there are numerous ways to advertise and market your business to your customer base. But it takes time and money to design and create business logos, pamphlets, brochures, websites, social media campaigns, and print and broadcast ads. Be sure to think about the expenditures for both internal and external communications, including telephones, fax machines, computers, and Internet access, that help you to stay in touch with customers, vendors, suppliers, and employees. In some instances, you may even seek out paid market research on how to best reach your customers. Think broadly about these expenses in gauging your start-up outlays.
  • Paying Wages and Benefits. Although you may try to go it alone in the beginning, some businesses may necessitate that you hire employees in order to get your business off the ground. Do your homework on legal and market issues regarding employee wages, payroll taxes, benefits, and workers compensation, if applicable. You also should evaluate what you will pay yourself to operate your business.

Although this process may seem overwhelming, you may want to reach out to local small business incubator programs or organizations such as the Small Business Administration (SBA) or the Service Corps of Retired Executives (SCORE) for help on calculating likely start-up expenses. In addition, the SBA and SCORE offer helpful online and in-person workshops, mentoring opportunities, and business templates to aid small businesses as they plan for and operate their new ventures.

May 2013

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