6 Types of Expenses Involved when Starting a Business
Everyone dreams of becoming their own boss and finally call the shots. The best and sometimes the only way to do so is by starting your own business. According to the Small Business Administration, approximately 627,000 new companies open their doors each year, ushered in by aspiring entrepreneurs.
However, starting a new business is very difficult, as any entrepreneur will tell you. One of the largest hurdles is amassing enough capital to do so. Prospective businessowners often turn to bank loans and other organizations for financial assistance in this matter. But what exactly are the costs involved when opening a new business? Here are 6 types of expenses associated with opening new startups.
Costs Involved with Starting a New Business
Everything costs money, even establishing your own company. But just like investments and life insurance, the money you spend on opening a new business can flourish and secure your financial stability in the future. When planning to start a company of your own, you should be aware of the six most common types of expenses involved.
Here’s a comprehensive rundown of these costs.
Your business will need to have its own insurance policy, completely separate from your personal insurance in most cases. This is to protect it in case your company is broken into by criminals, catches fire or some other negative incident. Aside from insuring the business itself, you may be required to provide your employees with their own insurance policies. These protect workers and gives a modicum of financial assistance should anything untoward happen to them on the job. Premiums on these policies vary with each company and your provider.
2. Permits and Licenses
Whether you’re opening a new bar or selling natural preservatives for cosmetics, you will need to secure business licenses from local or even national authorities. For example, if you’re opening a bar you will need to a liquor license as well as a business permit. These are often affordable, although this depends on local legislation. The more areas of industry your business covers, the more licenses you’ll need. This does not include voluntary certifications thatboost your company’s reputation.
3. Real Estate Costs
There are many differences between starting your business and setting up an online store. One stark difference is that almost all startups will require an office space, especially if you have more than a handful of employees. This means you’ll either have to rent an office or purchase a building for your new enterprise to occupy. This tends to be the most expensive part of opening a new business and can comprise the largest portion of your business’s overhead afterward.
4. Technological Costs
This covers costs such as computers, internet services, mobile devices and other electronics. Nowadays, every business needs at least one computer, even if its solely to track your expenses and client information. Depending on the industry of your startup, your technological costs can skyrocket. For example, a boutique bakery will have drastically lower technological expenses than a software development firm.
5. Equipment Expenses
Not every device or piece of hardware you’ll buy for your new business falls into the technological category. Your desks, ergonomic chairs and carpeting are all part of what’s known as your equipment expense. This also covers specialized forms of equipment. Continuing the example above, a bakery will need plenty of ovens, stand mixers and possibly even a walk-in refrigerator. Don’t be tempted to scrimp on this part of your startup costs. A comfortable workplace with the right chairs and desks can mean the difference between a profitable first year of business.
6. Debts and Obligations
Finally, there are the costs your business will incur before it ever opens. The primary examples of these types of costs include any bank loans you may have had to take out just to finance any of the other aforementioned costs. Another type of financial obligation you’ll have to pay off sooner or later includes returning investment costs to all backers who helped fund your business. This does not count any personal cost you may have accrued financing the enterprise. For example, if you took out a mortgage on your house to buy equipment, that’s a personal cost and shouldn’t be part of your company’s obligations.
Starting a new business is a challenging and complex process. Understanding every aspect of this process is important in ensuring you know what you’re getting into when you want to become your own boss. Knowing the costs involved is essential in preparing yourself and your affairs properly for becoming an entrepreneur.