If this is your first startup, it’s crucial you understand the costs you need to consider and account for when launching a business. Including essentials like legal fees, equipment, stock, branding, and marketing because they can quickly add up.
And costs vary depending on your business structure.
For example, the U.S Small Business Administration estimates the cost of home-based or micro-business startups at around $2000 to $5000. But if you’re going to start an LLC, those costs can rise to $30,000.
Now’s the time to be realistic and account for all your startup costs, so you avoid over-extending your finances and running out of cash.
- 1 Types of business startup costs
- 1.1 One-time costs:
- 1.2 1. Incorporation fees
- 1.3 2. License and Permit Fees
- 1.4 3. Insurance
- 1.5 4. Professional consultants
- 1.6 5. Equipment and Supplies
- 1.7 6. Office space and furniture
- 1.8 7. Stock
- 1.9 8. Branding
- 1.10 9. Marketing
- 1.11 10. Website and hosting fees
Types of business startup costs
The first things to consider and account for when launching a business are fixed and variable costs.
Fixed costs are outgoings you’ll need to pay regardless of whether your business is profitable, such as rental premises, utilities, insurance, permits, etc. In comparison, variable costs are from the direct sale of your product or service, like logistics/fuel, goods, and wages.
Next, account for your one-time startup costs.
Most startups have initial one-time costs, such as incorporating your business, obtaining licenses and equipment. It’s why the first few months are usually the most expensive for new companies, and you’ll need to have that cash available before you can start trading.
Here are 10 costs you need to consider and account for when launching your business.
1. Incorporation fees
Incorporating your business means registering it as a legal entity with your state.
Typically, startups use one of the following business structures:
Sole Proprietorship, General Partnership, Limited Liability Company, or Corporation. Which one you choose affects how you’ll set up and run your business, including taxes, legal liability, and your initial registration fees.
For example, suppose you choose to trade as a sole proprietorship or general partnership. In that case, you don’t need to register, thus avoiding incorporation fees. However, if you register an LLC or corporation, you must file articles of incorporation, with costs ranging from $100 to $750 depending on the state.
2. License and Permit Fees
Regardless of whether you incorporate or not, you may need to apply for state or federal licenses and permits to trade.
And the licenses and permits you’ll require are determined by your industry and location.
For example, an agricultural business might require industry-specific permits and federal licenses, while a retail shop only needs a sales tax license number.
You can find out more about permits and licenses on the SBA website.
Every startup has its specific insurance protection needs. And here’s where adequate insurance cover comes into play, as you don’t want to be personally liable if anything should go wrong.
Three most common insurance types:
Employers’ liability insurance
If you’re going to hire employees, the law requires you to have this insurance. It covers your business from compensation claims should an employee be injured while at work.
Professional indemnity insurance
This insurance covers you in the case of compensation claims made by a client where they believe you’ve made a breach of contract.
Public liability insurance
If you’re working with the public or they’ll enter your place of business, public liability insurance covers you in the case of client accident and injury.
4. Professional consultants
Professional consultants aren’t cheap, and it can be tempting for startups to reduce costs by avoiding them. But experts can save you money in the long run, and there are ways of reducing their costs.
Certified accountants can advise and help you register and choose a suitable employee benefits program if you’re incorporating a legal entity like an LLC or corporation. But more importantly, they can prepare your end-of-year tax returns and save you money by offsetting any business expenses.
And if you learn how to maintain your bookwork/spreadsheets, you don’t need to hire an accountant full time. Only availing of their services on a quarterly or annual basis.
5. Equipment and Supplies
Equipment and supply costs vary for every startup, and depending on your needs, can account for a large percentage of your budget.
And how you go about obtaining them depends on what you can afford.
For example, you could buy new equipment and offset it against your tax bill if your budget allows. If not, second-hand equipment or leasing could be a more viable option. However, if you lease, approach it as a short-term solution as you’ll always pay for that equipment.
Also, think about what you can do without at first, minimizing your costs until such a time that you can afford the best equipment available.
6. Office space and furniture
If your business is a traditional 9 to 5 with employees, you’ll need desks, chairs, a phone, a computer, and office stationery to get started. And, of course, your actual office space.
New office furniture for a small business can cost up to $5000. However, office furniture is something you can always buy second-hand, and almost every town and city have second-hand stores where you’ll find heavily discounted office products.
If you need an office, you could further reduce costs by renting shared office space in a local business park/office building. And don’t forget, Apple and Microsoft both started in a garage! Just a thought.
OK, the stock is something you can’t avoid, especially if you’re in the wholesale, retail, distribution, or manufacturing sectors. And you’ll need it from the moment you start trading, so at this early stage, consider your costs carefully.
Because if you buy too much stock and it doesn’t sell, you could run out of cash flow. Too little, and you won’t be able to cover demand, losing sales and damaging your reputation.
However, suppose you establish a good relationship with your supplier and place a minimum order quantity at a reasonable price. In that case, you can test your market, obtaining more stock as you need it.
And as stock costs can vary between 17% and 25% of your annual budget, it pays to shop around.
The visual aspect of your business is essential both as a perception of your brand and for engaging your future customer’s interests.
Most startups create a logo, believing that it’ll be enough to get their message across. However, branding design goes further than a logo, especially if you want to stand out from your competitors.
You have to consider the overall visual language style you use when communicating your message, including the colors and fonts used on your marketing platforms.
Here’s some good news.
You no longer have to employ a branding agency to create a cohesive brand strategy to promote your new business successfully. You can now use a logo creator tool to do it for you for a fraction of the cost. These AI platforms also provide complete business branding solutions.
The real benefit to startups is these tools are excellent for establishing a marketing presence on websites and social media platforms and solidifying your brand’s presence. Helping create the much-needed trust factor that many startups struggle to obtain at the beginning.
Your business type and location also determine your marketing advertising and promotional costs.
If you’re solely working online, social media and your website might be your primary marketing platforms. Then you have to choose between organic and paid advertising. Most new businesses use a combination of both when first starting.
However, suppose you’re a physical business or trading locally. In that case, you’ll also need physical marketing materials, including business cards, signage, local media (print and radio), banners, and possibly transit marketing on buses or trains, etc.
10. Website and hosting fees
Most businesses now require a website to trade. They’re a powerful way of marketing your business to your target audience and engaging your community. And statistics show that 76% of consumers visit a company’s website before doing business with them!
Fortunately, there are now numerous website-building and hosting platforms that make creating a professional-looking website cost-effective and easy to do
And some provide free basic packages, with optional premium plans available for when you’re ready to scale up your business.