Starting a new business can be one of the most rewarding experiences of a lifetime. You are venturing into a whole new realm, showing the entire world your idea, making your vision come true by offering people your new product or service that may make lives so much easier.
Beyond all the thrill and novelty of launching a business, working for yourself, and becoming an entrepreneur, it is essential to treat your enterprise for what it is: a business.
Before recklessly investing all your time and money into making your idea a reality, it is essential that you consider the costs of starting a business, whether for marketing, product production, hiring staff and training them, or funds for rainy days. Calculating your expenses ahead of time allows you to estimate the scope of your business and set up a realistic growth plan that you can then adjust as you grow.
One of the most widespread struggles small business owners face is high rent prices. More often than not, the rent is too high, your business can no longer make any profit, and all of it is going toward the rent. And while you might want to aim for a good location for your business, good locations often cost more. So the better the location, the more money your business will generate, but the more your rent would cost.
You can get around this by letting employees work remotely from their homes or rent two locations. The best locations would be small and compact and where you meet with clients and customers. The cheaper and more prominent location would instead hold most of your business operations.
Another money drainer is quality equipment. All businesses require equipment, whether you have a production line and need heavy machinery, or a small office and need desktop computers for your staff. The best way to get equipment is to buy them on sale and in payments instead of cash. That gives you more time to generate their value instead of paying out of pocket.
While not all businesses have or need inventory, such as technical businesses, inventory is a standard cost of retail or goods production industries. For example, a restaurant always needs to keep fresh ingredients in stock to ensure their menu is available even if their delivery contractors are late for various circumstances. Additionally, storing inventory means you can buy products in bulk, reducing per-unit and per-item price, as well as shipping costs.
Insurance is an ongoing, unavoidable cost essential for businesses of all types, industries, and sizes. However, depending on your industry, you might have different insurance policy needs. You may need to cover employee liability, property damage, vehicle insurance, general liability, or more niche risks. Either way, you must know your total small business insurance cost to determine how much your revenue is going toward insurance and set that amount aside to avoid being uninsured.
Similar to individuals, businesses need to abide by local and federal laws and adhere to industry regulations. For instance, if you are an organic food vendor, you will need to pay yearly subscriptions for organic creation. The same applies to restaurants, forcing them to meet and maintain food safety certifications and keep their equipment and facilities up to date in terms of FDA standards of quality and employee safety. Not to mention, most states require annual reports that incur fees.
Not only is compliance required by law, but it also makes your business more trustworthy. Ensuring your business maintains compliance makes clients and customers more likely to choose you over the competition.
Having employees and contractors is one of the most expensive costs a small business could have. And while employees are essential for running and maintaining a business, they are also costly. Besides paying them salaries that correspond to their skills, experience, and hours, you also need to include certain benefits for full-time employees such as health insurance and 401k options.
Keeping Your Numbers in Check
With all the different expenses your business needs, it’s easy to lose track and find
yourself behind on some payments. That’s why it’s essential to keep a checking registry and track what you need to pay and when you need to pay it. In addition to the benefit of staying on time with your payment, closely monitoring your spending would allow you to find unnecessary expenses that you could cut for the sake of increasing your revenue or investing in developing a new aspect of your business.