There are many expenses that might take you by surprise when you start your own business. We've gathered six common expenses and tips for managing them.
If the upheaval of the past year has taught us anything, it's that there are no guarantees in business. But one hidden benefit of mass closures and unexpected downtime at home is the opportunity to reevaluate our careers. Many have taken this time to rethink what life and work really mean to them and decided to start their own businesses.
The thought of going out on your own may bring a mixture of fear and excitement. Maybe it's something you've been thinking about for a while, and now fate has forced your hand. But before you take that step, there are some hidden costs you may not have considered. It’s important to know your market and understand the costs you’re up against when starting your own business
Hidden costs for new businesses
Anyone who has ever worked long hours at a dead end job may have dreamed of being their own boss someday. Maybe you have a side hustle or a hobby you've wanted to expand into a business.
However, being your own boss is challenging, and it’s definitely not for everyone. The reality is that working for yourself often means working harder than you ever have before — not to mention barely breaking even for quite some time.
Costs like office space, equipment, and payroll are to be expected and may be easier to calculate. But, there are many expenses that might take you by surprise when you launch your startup. Everything from the hidden costs of website maintenance to acquiring the right kind of insurance can set you back if you don’t plan for them.
Before you take the leap, here are six hidden costs that you should know about, plus some tips on how to make them more manageable.
You might think that you can just start your business small and build upon it. But even a stellar business idea requires some capital to get it off the ground. Unfortunately, this is also one of the hardest parts of starting a company.
Some new business owners don’t understand the finances behind starting a business well enough to present their financial information to loan officers or potential investors. What’s more, women, persons of color, and other minorities underrepresented in the startup space face additional bias and challenges. For example, one study found that black business owners were 10% more likely to apply for startup assistance but 19% less likely to be approved.
Rather than trying to obtain a bank loan — or using your personal savings — consider crowdfunding or angel investors.
You could also look into small business grants, which don't need to be repaid.
This may be the nest egg you need to get your business off the ground in the event you are unable to acquire a loan or other funding source.
It would be a mistake to avoid the two crucial expenses for starting any business: hiring an accountant and a business lawyer. Regulations about licensing vary from state to state, as do tax filing deadlines and fees. These also vary by the type of business or service and corporate structure. You can cut some of these costs by only using a business lawyer and accountant for your initial consultation about corporate structure, tax obligations, and insurance requirements.
Budget management is also critical from day one. One of the first things you acquire for your business should be quality accounting software. Make sure your accounting tools come with crucial features such as robust small business accounting reports and accountant-friendly software to avoid any regulatory headaches or overlooked expenses on tax day.
Insurance is an expense you'd rather not need, but you'll be glad you have it when the unexpected happens. Plus, for some states and industries, it's a legal requirement. If you have any employees, you'll also need to consider workers compensation as well as health and life insurance.
Insurance is the one expense you can't put off, so it's best to shop around for the best rates and policies for your current situation. Consider only getting a liability insurance plan at first if that is feasible for you in terms of risk, and discuss your options with your provider.
You can always add coverage as your business grows, so it’s important to get flexible insurance plans.
These are the little costs that you might have taken for granted when you worked for someone else, but they really add up if you aren't paying attention. Admin costs include big things like computers and software, in addition to little things like ink, paper, and other office supplies. If you're working from home, you will even have to consider the effect of running a home office on your electric bill.
If you meet certain requirements, you can deduct part of your rent or mortgage, phone, and utility bills for business use of your home.
Keep in mind that office supplies are less expensive when you buy them in bulk.
As for your tech solutions, consider the cost-benefit of leasing versus buying, outsourcing versus in-house, and SaaS or PaaS. These alternatives may come with upgrades and maintenance built into the contract.
Building your website
No matter what type of business you plan to launch, you're going to need a website. And one thing to beware of is that even "free" websites aren't really free. Hosting services that claim they are free will often make money by selling your data or forcing you to have ads on your site.
There's also a chance that you won't even own your domain or have the freedom to move your website later. When preparing to build your site, you'll need to consider the cost of registering your domain, designing the site itself, and finding a hosting provider.
Usually, the main expenses are domain registration and a reliable hosting provider. There are some trustworthy, inexpensive options out there, but be wary of hidden costs. According to Alex Williams of Hosting Data, you should be strategic about the hosting service you decide to use. This is because some hosting providers will try to up-sell, such as trying to get you to purchase add-ons that you could get for free simply by making clever use of your control panel.
Perhaps you think that telling your friends and family or posting on Facebook is enough to get your business going. While your mom and your next door neighbor might account for a few sales, it's not enough to keep you going for more than a few weeks. Social media is only as good as the effort — and sometimes, money — that you put into it.
You can save money on advertising by leveraging digital platforms and letting technology do the heavy lifting.
You can pay a small fee for targeted ads on most social media platforms, reach out to influencers with sway among your target demographic, or look into affiliate marketing.
The bottom line
Our goal is to help you avoid the pitfalls that can derail your new venture, and funding issues are one of the most significant challenges for new businesses. As you’re starting out, keep these practical tips in mind so you don’t overlook any critical costs that might bring your business planning to a halt.