So, you have decided to start a business. As exciting as this decision is for a new entrepreneur, it is often followed by feelings of uncertainty, anxiety and doubt. Many of these emotions stem from financial questions and worries. How much does it really cost to run a small business? The best way to set your business up for success is to understand what your business’ specific needs are. Estimating startup costs will help you choose the right financing option, efficiently manage cash flow and understand your break-even point.
Types of Startup Costs
What are startup costs? Business startup expenses are the costs incurred before making money from your business. These costs can be separated into two categories: expenses and capital expenditures. Startup expenses are costs involved in preparing your business that will continue long term (e.g. payroll, rent, insurance, professional fees, etc.). On the other hand, capital expenditures are one-time purchases made to buy assets for your business (inventory, property, equipment, vehicles, etc.).
Each of these costs are important to understand because they will affect your business’ finances differently. The best way to estimate your business startup costs is to draft a business plan and create a budget. (Keep in mind that many startup costs are recurring on either a monthly, quarterly or annual basis.) This will also give you a better understanding of how much capital you will need when you seek startup funding.
Common Small Business Startup Costs
While your exact startup costs will depend entirely upon your specific business and industry, there are costs you are likely to have no matter what. The list below includes typical business startup costs you should plan for and add to your budget. Make sure you also include any other expenses that are unique to your business.
Incorporation Costs
The business structure you choose influences everything from day-to-day operations and taxes to how much of your personal assets are at risk. It should also give you the right balance of legal protection and benefits. If you decide to incorporate or register as a limited liability company, filing articles of incorporation with your state could range from as low as $50 to as high as $725. In most states, the fee is under $300.
Equipment
Nearly every business will need to immediately finance equipment. Depending on the size of the business and industry, equipment startup costs can range anywhere from $10,000 to more than $200,000. A home-based business will have very different equipment costs than an oilfield services company, for example. If you are starting a trucking company, you will need to finance trucks. If you have multiple employees, you will also have to consider certain types of individual equipment.
Employee Expenses
Are you planning on hiring employees right away to start building your team? If so, you will need to plan in advance for expenses like wages, salaries, and benefits (if offered). Other employee expenses that are often overlooked include advertising, interviewing and training. To reduce hiring costs and turnover rates – hiring the wrong employee can add up to thousands in lost revenue – make sure you write clear job descriptions, offer competitive wages and opportunities and create a positive company culture.
Professional Services
While it might be tempting to try and do everything yourself, hiring professionals like certified public accountants and attorneys is critical. Yes, legal and accounting fees will quickly add up to thousands of dollars a year. However, these specialists will save you time and money in the long run. These professionals can help you set up your business, prepare tax returns, offer financial guidance and advice, ensure you avoid crippling legal mistakes and more. In short, they can help untangle anything holding your business back from growing.
Business Insurance
The type of insurance your startup will need entirely depends on your business, industry, number of employees and other risk factors. Securing business insurance is strongly recommended for your space, inventory, equipment and employees to protect the future of your business. Typically, the types of insurance you might need to consider are: General Liability Insurance, Medical Insurance, Worker’s Compensation Insurance, Commercial Vehicle Insurance and Professional Liability Insurance.
Website
Most consumers today begin their search online, so you want to make sure you have a strong online presence that provides value to potential customers. It is more important than ever to have a professional-looking website that is user-friendly and provides customers with key information about your business, services and products. Whether you build the website or hire someone to build it for you, there are several costs to budget for: domain registration fees, hosting fees and a professional design.
Secure the Right Funding to Cover Startup Costs
Once you put together an estimate of your business expenses, you can then determine how much funding you need for your initial cash flow requirements. Ideally, you want to be able to cover six months’ worth of expenses up front. Although there are many different small business cash flow solutions, keep in mind that not all funding options are created equal. The funding option you choose should quickly provide the cushion of cash you need to get your feet under you, without adding a heavy burden of debt.
This is just one of the reasons more and more business owners are turning to invoice factoring. Invoice factoring is a cash flow solution that turns your business’ unpaid invoices into quick working capital. You can have cash on hand in as little as 24 hours, there is no debt to repay and you secure unlimited funding potential. Ultimately, you gain access to the working capital you need to hire the right team, purchase new equipment, cover day-to-day expenses and create a cash cushion for growth.
If you would like to learn more about how invoice factoring works, contact our cash flow experts at Bold Business Capital to get started.
