By Tian DuBelko
Any founder who tries to start a business will incur startup costs, which are costs that your business experiences before it begins making a profit. These costs fall into two categories: capital expenditures and expenses. Capital expenditures are one-time payments that you need to make to buy assets for your business, such as vehicles, supplies, or property. While you can write these startup costs off through depreciation, they don’t qualify for tax deductions.
The other type of startup costs are the expenses involved in preparing to open your business. This can be anything from market research, advertising, training, fees, and wages paid to professional lawyers or accounts. Unlike capital expenditures, these costs are usually tax deductible during your first year of business.
Setting Up Your Company
Trying to account for all your setup costs can seem an overwhelming task for inexperienced entrepreneurs. We’ve compiled a list of company setup costs that most founders plan on, along with some hidden costs that future CEOs might overlook. Check out these small business costs and get some tips on managing them.
Office Space
Even if your business operates entirely online, you may not want to set up your business at home. However, a dedicated office space comes with a host of costs, including Internet, electricity, phone, water, sewer, and trash disposal. Running your business from your home might save money in the short term, but it also limits your business’s growth. Also, depending on your field, your home may be too small for your budding startup.
In any case, a shared office space can be a great look for your business. These offices generally come with office equipment, meeting spaces, and receptionist services to serve your day-to-day business needs. You’ll also have access to other growing companies and build a network of potential future business partners.
Recommended: 31 Ways a Shared Office Can Help You and Your Company Succeed
Licenses and Permits
New business owners tend to be shocked when they find out how many licenses and permits they need in order to conduct business in their communities. Make sure you factor these expenses into your startup costs. Some permits and licenses need to be renewed at frequent intervals, depending on the state and the license. Setting aside money for membership dues can pay off as well, since industry and professional groups are great ways to network and make valuable contacts in your field.
Some professional groups even offer member discounts on business staples, such as supplies, training, loans, credit card fees, etc. The savings may not seem like a lot, but they will let you save invaluable capital for elsewhere.
Employees
Even if you’re a one-man show, you’ll probably need to hire some employees to help your run and manage your business. However, hiring employees also come with training costs, salaries, health insurance, personal leave, and medical leave. Other factors you should provide include a clean work environment, office perks, as well as other benefits to keep personnel turnover to a minimum.
Studies have shown that it takes between six and nine months’ salary to replace an employee who leaves, so keeping employees satisfied and around will save you costs from having to hire new ones. Good ways to boost employee retention include cheap/free perks like half-day Fridays during the summer or casual dress codes, and flexible schedules and telecommuting options will help as well. Also, remember to renegotiate with your health insurance provider every year for reduced costs and premiums fees.
Recommended: 10 Tips For Hiring An Assistant
Insurance
Along with health insurance, you’ll need to have employer liability and public liability insurance too. Property, injury, and negligence insurance should be considered as well, depending on your business. It goes without saying that if you want a lower insurance rate, negotiate with your insurance providers. Insurance agencies are more likely to give you a discount if you purchase multiple policies from them.
Make sure to review your policies every few years and see if your coverage is still adequate for your business needs. As your business expands, don’t hesitate to speak with other insurers and shop around for a lower rate.
Business Equipment
Even if you’ve already factored in the pieces of equipment your business will need to make a product or offer a service, there are other smaller costs that can quickly pile up. Basic office equipment like desks, computers, chairs, copiers, scanner, and printers should be factored into your budget.
Buying equipment second-hand can be an effective way to save on these necessary expenses. Look for discounts on websites. Or look at your local businesses for a second-hand office equipment vendor. Government auctions is another potential place to look. If you need to purchase electronic items such as laptops or cell phones, you can often get a refurbished model that is nearly as new for a much lower price.
Professional Services
Even the most hands-on small business owner turn to professionals for legal and accounting help. And while these fees can cost thousands of dollars yearly, they generally save you money, time, and headaches in the long run. Savvy accountants understand the tax codes and will prevent you from paying more taxes than you should, while skilled lawyers will steer you clear of any potential red tape while you grow your business.
Recommended: 5 Factors to Consider For Startups Hiring Lawyers
Credit Card Fees
A common expense that new startup business owners overlook is the credit card fee. For each customer that pays for your goods or services with a credit card, you’ll lose about 3 percent of each sale in credit card fees. And if you use a credit card to finance business expenses, make sure you pay off the full balance each month as to not incur compounding fees.
If your customers will be paying primarily with credit cards, do a little legwork and try to find the credit card service provider with the lowest fees. To encourage customers to use cash, you can offer a small discount for cash payments. If you’re financing your business, be wary of using credit cards and try not to accumulate a mountain of credit card debt. If you’re in need of capital to cover expenses, consider loans and grants since they offer lower interest rates.
Delayed Payments
For businesses just starting out, delayed payments really hammer away at your financial bottom line. If you can, set up explicit payment terms with your customers to protect yourself if they forget to pay in exchange for goods and services. That way, you can pursue late fees if they don’t pay according to terms.
Busy holidays can cause delays in payments clearing, banks can get stalled, and customers might forget to send their payments on time, but your rent, utilities, payroll, and insurance still need be paid for.
Ready to Make the Leap?
Choosing the right shared office space can jumpstart your tech business and accelerate your company’s growth. In the right ecosystem, you’ll have an easier time hiring top talent, networking with industry and legal professionals, and even securing the next round of funding.
Think your Seattle tech company might be a good fit for extraSlice’s community of trendsetters and innovators? Then book a tour of our tech campus or visit our website to learn more about The Place for Tech!
