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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.

Such as:

Licensing/Permit Fees

No license? More like no 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!

Professional/Legal Fees

Always consult a lawyer before launching a company!

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)!

Administrative Costs

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.

Employees/Insurance/Taxes

Taxes are no fun, but there's no getting around them.

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.


cjones

Candice is on the web team at QLP. She's extremely family-oriented and enjoys spending all of her free time with her daughter and family. She LOVES to shop and just experience life again through her daughter's eyes. There's nothing better than that in the world for her! You can also connect with Candice on Google+

Comments

  1. Jen

    Candice, this is a great rundown of hidden costs for business owners. I knew about all of them, but seeing it all in one place is a daunting thought. There is soooo much to consider when becoming a business owner. I’m sure it’s all worth it in the end :)

    • Candice J.

      I knew about a few of these things watching my parents start a business but I never knew all that really goes into it. And this blog is just the tip of the iceberg. There are SO MANY more things that people don’t think about or consider that can up to thousands of dollars. As a new business owner I’m sure not a lot of them have much of that to spare. Thanks for commenting!

  2. Mandy Kilinskis

    Wow, it’s a little terrifying to see all of these costs stacked up together like that! In this one circumstance, I’m glad that I missed the entrepreneurial gene.

    Still, for all of those people that aren’t daunted by this list – good for you!

    • Candice J.

      It is a pretty daunting list, especially if you’re a new business owner and you only have a certain time frame to accomplish this in. I can’t even imagine how stressful that would be. Either way many cheers for those who manage to accomplish this list and more to start their own empire.

  3. Jaimie Smith

    This was such a nice informative post, Candice!
    Its crazy all the things that are behind running a business. You never think the expenses would be that much until its right there and black and white.
    This kind of reminds me of when you move out to be on your own. I have been wanting to move out of my parents house, but its crazy all the things you have to pay for that you never really thought of. Especially all the little things, that may seem like no big deal but eventually add up. Like food, toilet paper, shampoo conditioner, etc. You just have to realize that everything you had at home, you now have to pay for on your own….kind of like a business. If you are working for somebody, everything you have there, you have to get on your own once you decide you want your own business.

    • Candice J.

      That’s actually a pretty great comparison Jaimie. I’ve always known moving out wasn’t cheap when I got my first place with my daughter but I NEVER imagined how expensive it would turn out to be. You budget for the big things like couch, bed, TV, all the normal stuff. What most people don’t take into account is the little things like pillows, pillow covers, linen, dish soap, groceries (including all your seasoning and condiments) etc. It might now sound like a lot but when your forced to buy it all at once it can cost a pretty penny. Good luck on your plans! As long as you plan and budget right I’m sure you’ll do great!

  4. Rachel

    Great post, Candice! You mention under Professional/Legal Fees to be sure to set up the legal structures you need to, such as making your business an LLC or a corporation. A very good point! Especially since the way you organize your company puts in place limitations on your personal liability — so that if your business fails or goes deep into debt, creditors won’t start going after your personal belongings (such as your house) to pay off those debts. So while it might be expensive to, say, file your company as a corporation, it offers you some really valuable personal protection. It’s one of many things to consider when deciding how to classify your business. This is my understanding from various college courses, anyway! :)

    Thanks for the rundown of all this valuable information, Candice. A great help to many people thinking about starting a business, I’m sure!

    • Candice J.

      I actually never thought of it that way but you make a good point. No one wants to think about their business failing before it even begins but its a reality of the economy we live it. It’d be one thing for your business to fail but another to have your home taken from you because you didn’t set up and structure your business correctly. That’s like pouring salt in an open wound. Although a lot of the these things may be more costly upfront it appears that it is more than worth it in the end.

  5. Amy Swanson

    Great run down, Candice! You have clearly done your research! It’s quite amazing how all those pesky things like rent, water, and electricity can really add up on top of all the costs you’re already aware of and budgeting.

    A very informative post!

  6. Candice J.

    Like I said in the post, “It might not seem like a lot, but always remember the little things eventually add up to something big.” And really that goes for most situations when your starting something new. Thanks for commenting!

  7. Alex Brodsky

    Wow. Awesome post Candice!

    I’ve often thought about starting some sort of business some day, but always assumed there was WAY too much involved that I didn’t know about it. And you have given me proof that I was 100% right! Those things would eventually cause my company to sink.

    If someday I ever make it super rich and can start my own company, I’ll make sure to consult you (and a “licensed” professional)!

    • Candice J.

      I’ve always toyed with the idea of how great it would be to start my own business, make my own hours, etc. But after my research for this post I have rethought my position. Yeah it would be great but you’re right, the amount of work it would take just to achieve this is MASSIVE. Not sure I have the amount of time needed to accomplish this task and my company def. would have gone under by now because I didn’t know about half these things. Lol, but I’m sure for the people who manage to muscle through and get it done it has become more than worth it! Thanks for commenting!

  8. Jill Tooley

    Yikes! That’s a lot of fees! This is why I’d have to hire people to help me with my business if I ever started one…

    The association fees seem like an obvious one, but people get tripped up on this part because they automatically assume that it’s better to join ANY and EVERY association out there to get PR. Totally not the case! It’s actually better to join a couple of excellent associations and actually engage with the other members than it is to spread yourself too thin and join 100 that you never do anything with. Pretty common mistake, though!

    Thanks for getting these together, they’re quite helpful :)

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