A Barlow Research study recently reported that U.S. small business lost upwards of $2 trillion in the recession and struggled to bounce back, despite government efforts. In addition, the Global Entrepreneurship Monitor reported that more than half of all businesses that shut down do so because of a lack of profitability. The first slip-up that most small businesses make that lead to a swift and painful failure? Overlooked small business start up costs that cripple your business before you even begin making money.
The Wall Street Journal has a handy free calculator program that can help small businesses estimate the costs you might have forgotten to factor into your new business. Check this list of the most commonly overlooked small business start up costs that you should know about, and reference the WSJ’s calculator to make sure these costs don’t catch you by surprise and hurt your new business:
Do you need to purchase a license or permit to run your business? Do you have to pay dues to any local, state, or federal organizations or meet guidelines? Do you need permits to ship products, operate business online, or exist within a certain space?
Small businesses often overlook the magnitude of their legal fees. There’s more than a little paperwork involved, as you’re already discovering. And it all costs money that you’ll want to factor into the startup costs of your business.
That’s all in addition to paying your attorney (which you’ll absolutely need.) Have them look everything over to ensure that you’re up to code and you’re 100% legal and ready to open for business. The fees that you’d be slapped with if you fail to meet all your legal requirements will be far more than what you have in the budget, so it’s more financially safe to double-check that you’re legally squared away before you start.
You’re also going to want to include insurances into your legal fee startup costs. Insure your business, equipment, space, and whatever else you think is prudent. Again- trying to cut corners on legal fees like insurance has tanked countless businesses when something happens and they have to pay out of pocket. It’s better to be prepared for any situation, so you don’t have to take a massive financial hit further down the road.
46% of small business say that they don’t work with an accountant. But again, that can wind up costing you more legal fees than you save by not hiring an accountant. It’s worth it if you intend to do this by the book and prevent money loss in the future. It’s critical that you start off your small business carefully, and cover all your bases.
Plus, one of the major mistakes that rookies often make is to not cash in on all the tax deductible benefits that come with starting up a new business. The government offers an endless supply of tax deductions that you probably qualify for, because they’re trying to help small businesses bounce back. An accountant will help you reap the full benefits that you may have overlooked without them.
When it comes to your legal fees in calculating your startup costs, it’s better to be thorough and well-covered than completely up a creek in a few months.
Equipment and Space
You’re going to need a lot of stuff. It never seems like much, but then you step back and think about all the supplies you’ll actually need… paper, ink, staples, chairs, computers, software systems, even light bulbs. Hopefully you have a bathroom in your new business space, and hopefully it’s stocked with toilet paper. Which you’ll have to pay for.
When you’ve got sparkles in your eyes from your new small business dream becoming a reality, it’s easy to lose sight of all the things you’ll need to purchase to actually get your business running. In your mind, you immediately think of the cost of production of your product, employee costs, and that’s about it.
But you’re going to need more stuff than you probably financially bargained for if you want to get your business up and running. Paying the rent and utility bills on your business’ new space will be a major cost that goes beyond startup (although there might be a deposit or installation fees.) Maintenance of the space is also going to cost you, as will any remodels, upgrades, or specifications to the space that you’ll need to make. Who do you think is going to have to pay for the cleaning of your pretty new business space? That’d be you.
You’ll need things like copiers, phone lines, desks, and any equipment you might specifically need for your business to function. While you can easily lease used equipment at a cheaper startup cost than purchasing the equipment new, you may end up paying more in leasing fees and security deposits than if you’d just bought the equipment outright to own. But that can easily vary depending on the business and the equipment. Just do your homework first, in order to save yourself the most money possible.
Don’t forget to budget for repairs. You might have a month where the printer breaks, the A/C is on the fritz, and your storage room floods, damaging your inventory. You never know. Insurance will help with some repairs, but be sure to know how much money you can reasonably set aside for emergency repairs and include it when thinking about your startup costs for renting the space and equipment.
It’s all the little startup costs hidden in equipment and space needs that tend to hit new small businesses the hardest. Things like rugs in front of the outside doors in the winter to soak up snow sludge, pens, and coffee supplies will all add up over time. But factoring in startup costs like your many supplies before you begin will help you more fully understand what to expect. And that way, you won’t forget to have things like sticky notes handy in those first few months.
Of course you’ve already budgeted the cost of employees into your startup costs. You’ve included pay, benefits, bonuses, and number of people you can hire all worked out. But many small business owners get to work, only to quickly realize that they misjudged the number of employees they needed, as well as the hours they should keep.
Investing in your employee’s happiness can be difficult when your main concern is staying out of the red. But it’s actually more costly to continuously hire and train new employees than it is to keep the ones you have happy where they are. Remember- it typically costs about one fifth of an employee’s salary just to replace them if they leave.
The tendency of new business owners is to overestimate how much work you’ll be able to do. Most small business owners wind up doing much of the legwork themselves; but they burn out and become exhausted and miserable. But occasionally you might overestimate the number of staff you’ll need, and you have to make panicked layoffs to cover the cost of the money you lost. It’s a tricky situation to assess before you really even begin.
You’ve also already budgeted the employees vital to producing and selling your product… but what about the employees you may not have considered hiring? It can depend on the business, but it’s always smart to consider hiring a department of people to help you get your business off to a strong start.
You probably can’t do all the advertising yourself, and countless businesses fail early on simply because the public doesn’t know they exist before they’re already gone. Hire people to spread the word.
Consider including some of these advertising employee costs into your startup assessments:
- Market research and brand strategists (they bring in the business so you don’t have to go door-to-door)
- Printed marketing materials (flyers, posters, coupons, business cards, mailers, etc.)
- Graphic design (you’ll want a memorable logo or look, right? Nike? Apple? Iconic graphic design.)
- Website design and maintenance (a must, especially if you intend to sell online)
- Professional social media specialists (not your 15-year-old niece!)
There are more people involved in even small business than entrepreneurs typically realize. You can’t run this thing all by yourself. It’s wisest to budget the right employees into your startup costs so you’re not short-staffed and going broke in the first quarter.
Installation and Setup
Your credit card machine will cost money, and so will getting it set up. Then, even after your startup fees are finished, it’ll continue to cost you money with credit card transaction fees. That’s just the nature of owning a business- spending money to barely make any money. At least in the first year or so.
Contractors and construction companies that you may be working with in the early stages will frequently go over their projected budget, or don’t have the space completed by your estimated move-in time. That’ll cost you money that needs to be budgeted for in your startup costs. Expect delays, and expect a few things to go wrong. It just happens. You’ll need to be financially prepared for the unexpected.
Your internet will be another startup cost: purchasing a router, modem, and other necessary equipment in addition to starting the service and having the Wifi installed and updated. Some service providers require you pay startup fees on top of the installation fees, so that’ll be another thing to add to your list of startup costs.
The costs of the building will be separate from the installation costs of things like a new water heater. But installing upgrades to the building might help save you money by becoming more energy efficient, and spending less on those bills and utilities we mentioned earlier.
You’ll probably have to hire movers to bring in all your new equipment and set it up, which costs more money, too. You’ll have to pay for the hours your new employees put in just attending training and setting up your space to begin business.
The startup costs associated with installation and setup fees can add hundreds of dollars to your initial budgeting of the equipment and place itself. Installation and setup is one of those costs that will tip your total more than you anticipated, and could affect your budget. Consider any potential startup costs you might have to pay with your utilities, upgrades, repairs, or equipment and add that to your budget.
It’ll keep you from being surprised when you have to find the money from another necessary budget. The less you go over budget in one area of your startup costs, the more likely you’ll be able to stay on budget in the other areas, because you won’t be having to reallocate money and cut something essential from your budget.
Take The Time To Consider Your Startup Costs Early On
If you go into your new business plan fully prepared to tackle all the startup costs you’ll have to face, you’ll be better protected from your new brainchild from going under in your first year. If you can survive the many startup costs of owning a small business and get past those first few milestones, you’ll be in the clear.
But it’s always best for new small business owners to sit down with a startup cost calculator like the one WSJ provides and work out those sneaky startup costs you may have overlooked. Budget these startup costs before you even begin the process, and you’ll have no trouble staying on target with your overall early budget.
Even if you don’t have to pay all those costs (or even if you run into a few more that you didn’t foresee) you’ll be better prepared to financially survive with a little startup cost assessment beforehand.