real costs starting business

The Real Costs of Starting a Business

By Rachel Blakely

Putting your business idea into motion is a beautiful thing. When you decide to start a company from scratch, you probably plan a small business budget to cover various expenses. Many times, it’s easy to neglect hidden costs. Find out the real cost of starting a business.

The cost of starting a business varies depending on factors like industry, location, and the entrepreneur.  According to the Small Business Administration (SBA), the average startup cost was $30,000 in 2009, but some businesses only paid $3,000 or less.

The range in business startup costs goes to show that there is no absolute way to predict the total cost of establishing a new company. However, there are steps you can take to budget your startup. Take a look at these real costs of starting a business.

Inventory

This expense is a bit obvious. If your business sells products, you know you need to purchase goods. Aside from the raw materials, there is another inventory-related expense. If you damage or lose one of the goods you bought, it is known as shrinkage. This means you paid for the goods, but don’t receive anything in return.

Insurance

It’s important that you have liability insurance to protect your business. You might need other types of coverage, like workers compensation, errors and omissions, and property insurance.

Rent

Don’t forget to account for how much you pay to rent the physical business building (if applicable). Most owners pay hundreds, or even thousands, of dollars each month for this overhead expense.

Taxes

As a business owner, you need to pay estimated taxes to cover self-employment and income taxes. Since you don’t have anyone withholding taxes from your paychecks, you are required to pay taxes yourself.

Employee Wages

Maybe you have one or two employees helping you to start your business. Employee wages can make up a significant portion of your business’s expenses. And, there are employer contributions for taxes and optional contributions for benefits (i.e., retirement or health insurance plans).

Professional Fees

To get your business up and running, you might enlist the help of some professionals, like lawyers and accountants. They can help establish your business structure and address your finances.

Permits and Licenses

Before starting a business, make sure you purchase the right license or permit to run it. Almost every business needs a license or permit. What you need depends on your business location and industry.

Miscellaneous Fees

This is not an all-inclusive list of business expenses. There are also miscellaneous fees you might be saddled with from time to time, like advertising and credit card fees.

Some other expenses you might have include recruiter fees or the cost of training employees. Make sure you think of all possible expenses that are specific to your business.

Keep in Mind…

Many business startup costs are tax deductible, meaning you will subtract them from your business’s total income before calculating your business’s taxes. This lowers your business’s tax liability. You can deduct expenses like insurance, employee wages, and rent. Consult the IRS for more information.

If you are budget-conscious like most small business owners, you will need to shop around to get the best rates on all your expenses. Compare prices before making decisions.

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Rachel Blakely
Rachel Blakely is a content writer at Patriot Software, LLC, a provider of payroll and accounting software for small businesses. She provides accounting, payroll, and small business tips in her writings.

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