Thinking of starting up a new business? Great!
In your excitement to launch and market your product, hire staff, secure financing, and set up your website or shop, it’s easy to miss or misjudge a few important startup costs. Yet neglecting these often-overlooked expenses could result in a cash crunch before your business even gets off the ground.
Don’t forget to budget for these six small business startup costs.
1. Business Insurance
While you hope nothing goes wrong when you’re launching a new business venture, sometimes it does. Not having business insurance in place could leave you struggling to pay for expenses you didn’t budget for while you’re trying to finance a new business. Small business owners should know when business liability insurance is needed.
Every small business is different, so choose the insurance coverages best suited for your situation. Business property insurance helps to protect your workplace location and property like tools and equipment, while general liability insurance helps protect your new business from claims for bodily injury, property damage, and other personal claims.
Business income insurance helps protect income lost when you can’t operate due to covered losses such as theft or fire. And don’t forget to protect your family against income loss with your own life insurance and disability insurance.
2. Fees and Licenses
Among other often-overlooked startup costs are the fees associated with establishing a business. You may have to pay to search and register your business name. Depending on your business location and the nature of the business, you may need federal, state, and/or municipal licenses and permits. The costs and requirements will vary.
3. Utility Bills
While you probably studied the commercial rents or property values in your area pretty carefully when budgeting for your startup costs, did you consider your other monthly utility expenses? Your startup operating expenses include more than just your office rent, lease payment, or mortgage. Depending on your business and location, your startup utility bills could also include:
- Heat and/or air conditioning
Talk to other business owners in the area to get an idea of the typical costs based on the square footage you’re considering.
4. Professional Expertise
Don’t underestimate legal fees and accounting fees when estimating the costs to start a new business. Paying for good advice regarding your business structure, legal agreements, and financial issues early on in your business can help you minimize or avoid costly future legal or tax entanglements. Get quotes from two to three professionals, so you’ll have a realistic idea of the costs you’ll incur.
There’s no getting away from paying taxes, even when you’re starting a new business. Find out what municipal, state, and federal taxes your startup must pay and when.
State and municipal taxes vary, so visit the U.S. Small Business Administration website for details pertinent to your location. At the very minimum, expect to pay state income tax and state employment taxes if you have staff, plus your federal business taxes, depending on your corporate/business structure.
6. Payroll/Bookkeeping Fees
Whether you have an automated online system, a bookkeeper who visits your office, or a virtual assistant, don’t forget to account for this important monthly cost. While a bookkeeper may charge anywhere from $20 to $50 per hour, a monthly flat-fee arrangement may be better, or you may opt for a subscription to an automated online payroll and bookkeeping program.
Starting a new business is a risk. Minimize your risk of failure and maximize your potential for success by realistically budgeting for all types of startup costs. This way you’ll be better prepared financially to handle the unexpected expenses that are bound to pop up.
A bookkeeper at $20 – $50 hour? At that rate, you are going to have a bigger mess than doing nothing. Do your research; the bookkeeping industry has changed due to automation and third party app integration; there is little need for someone to ‘keep the books’; instead invest in a professional who can see the whole picture, advise and partner with you to understand profitability, taxes and cashflow. That’s a lot more value to a startup and can contribute to more success.
I believe I may need additional business insurance.
You can find our phone number for business insurance on our contact page here: https://www.thehartford.com/contact-the-hartford
Our specialists will be happy to help!
Thank you! We’re glad you enjoyed it!
We’re glad you found it useful!
It is wise to also have an Insurance Expert review your agreements such as leases & contracts to be sure you are covered. When I started out I had a 5-year lease on my office (written by a reputable Real Estate agent supposedly working for me) that required I pay for the life of the lease even if the building burned down. Invaluable information. Also be sure your portable business equipment is covered outside of your office address.
Great insight, Rose.
Thanks for reading!