The Hidden Costs of Starting a Business: 5 Crucial Things You Must Know
Do you want to be your own boss? Or, maybe you have this incredible idea that you believe will benefit the masses and you want to put your plan into action and start your own company. No matter the reason, we all know that starting a business can be an expensive endeavor. You budget for the expected, but not a lot of people plan for the unexpected.
My goal today is to bring attention to some of the hidden or little-known fees involved in starting a business.
No license? More like no business.
I’m sure a lot of you are aware that you must obtain a license before you can legally run a business. What you might not be aware of is that there are a lot of considerations that could affect the amount of your business licensing fees. For example, federal industry regulations or other state/local policies that pertain to the profession your business is based in. The physical location of your business and the number of different jurisdictions in which your company chooses to do business may also affect how much government agencies will charge you for a business license.
Similarly, if your company chooses to be an online-based company operating on a nationwide platform, your company must have a license to do so. That means paying a significant amount of money toward your licensing fees. Also, keep in mind how long the license for your chosen profession is valid, and how often it may need to be renewed. Check your local regulations or visit the SBA’s (Small Business Association) website for more details.
Industry Association Fees
When starting up as a small business, it really helps to be connected. A great way to do this is by linking up with a trade association specific to your chosen industry. Keep in mind, however, that membership to these associations can be costly (upwards of hundreds of dollars for annual fees for membership), so try to be as selective as possible. Hopefully you will join one with loads of potential clients and try to keep the cost down by asking other members other good groups to join. Always make sure to get the most use out of your money!
Always consult a lawyer before launching a company!
If you’re going to run a business, you should make sure it is run right. Having a lawyer can run you anywhere from $125-$500 an hour, so it is best to negotiate fees upfront with all potential costs known. That way both sides are aware of what the cost will be and what is expected to be done. Also, if you plan on your business being around for years to come, it is in the company’s best interest to set up a legal structure for which your company will need to possess (ex. LLC, corporations, trademarks, copyrights, patents, non-disclosure agreements, etc.).
Along with a lawyer, it wouldn’t be a bad idea to hire an accountant (either on retainer or as an employee). If your company plans on making any money, it would be beneficial to have someone there to properly account for and manage the money being spent. (Again, try the SBA website for more guidance on this)!
Unless you are running your business out of your home, you need to consider where it will be located. Most people anticipate a rent or mortgage when they choose to buy or rent office space, but once you have that space you still have utilities (gas, a/c, electric, water, internet, phone services, etc.) to plan for.
If you plan on having any humans work in your office, that also means you need to buy toilet tissue, soap, paper towels, plates, cup, refrigerator, desk, chairs, file cabinets, etc. Another expense to keep in mind is the cost of technology your business will need. That means computers, phones, printers, papers, scanners, fax machines, software for your computers, hardware to store the information, website development and maintenance, and IT consulting (whether in house or out sourced). Don’t forget to plan ahead for repairs and maintenance costs for if and when any of these products break.
And those are just the big things! Never mind the office supplies (staplers, pens, paper clips, sticky notes, and highlighters), boxes for shipping, postage, and anything else you need to run your business on day to day basis. It might not seem like a lot, but always remember the little things eventually add up to something big.
Taxes are no fun, but there's no getting around them.
You can try to be a one man business, but depending on the industry I’m not so sure if that will work long term. Hiring employees is the next logical step to consider. The general consensus seems to be that people like to get paid for their work (big surprise) which means you will have wages and payroll. Depending on the business, you may also need to hire more people just to manage the payroll. Also, if your employees work full time then you’ll run into the issues of benefits and insurance.
As a business owner, you’re also required to purchase business property insurance, liability insurance, and unemployment insurance (it’s even more beneficial to buy a health insurance package for your employees in the case of any unfortunate events). Also, keep in mind that health insurance is most expensive for companies to operate with less than 10 employees. The more benefits you offer, the better quality candidates you attract to run an all-star business. It may be more costly upfront but it will benefit your business most in the end.
Oh, and whatever you do, don’t forget about taxes! While most people take great care to pay regular income tax, there are other applicable taxes at play as well. There is a self-employment tax, a payroll tax, and a FICA tax (includes Social Security and Medicare), which are often ignored. Not budgeting for these will come up later and may also bring costly penalties with them.
Those are just some of the major and most expensive fees most people tend to overlook. But there are a million more, like surety bonds, credit card fees, cell phone services, and sales and marketing costs (like promotional items!). By doing your research and budgeting for both the expected and the unexpected, you can prevent yourself from being in a situation where you have a lot to do and not enough money to do it with. Starting a small business may be hard, but once successful it is more than worth the effort!
**Disclaimer: The information provided in this blog post is meant as a brief overview only. We are not qualified to give advice on legal or financial matters. ALWAYS consult licensed professionals when starting a business.**
Do you have any more tips for people starting their own businesses? What other hidden costs should entrepreneurs watch out for?
Image credit to Clipart.com.