Opening a new business can be a thrilling but challenging prospect. One of the most intimidating aspects of starting a new business is financial management.
Determining the cost of starting your business and figuring out how you will afford it can be confusing and complicated. Business expenses can vary greatly. While a small at-home business may only cost a few thousand dollars, a larger one can cost much more to lift off the ground.
An accurate understanding of your business expenses will help you achieve long-lasting success. Having a good first year of business will allow you to reinvest in your business, grow your company, and increase revenue.
Business funding 101
When you start a new business, you will need to decide how to fund your start-up costs. Fortunately, there are many paths to take when financing your business, ranging from loans and investors to support from personal connections, such as family members.
A robust financing plan should account for the ongoing and unexpected costs of running a business. One strategy is to take advantage of business cash advance loans. A business cash advance can help stabilize your day-to-day cash flow and ensure you can keep the doors open even if your business model accounts for a slow season.
Other valuable funding resources include incubator programs, small business grants, small business loans, and crowdfunding. You may also consider dipping into personal savings if this is a feasible option for you. Ideally, your financing plan should combine multiple funding sources to maximize opportunities and have a strong foundation for the first year of business.
Estimate business costs
It’s a good idea to estimate business costs and develop a budget before spending any money. Forecasting expenses will help prevent your company from running out of cash within the first year.
Thoroughly go over all the financial elements of your business plan. You will need to consider both one-time and consistent expenses. Remember, some of your ongoing costs may change as your business develops, such as paying employees. Make a note to regularly check variable expenses to ensure you stay within your budget.
Never guess how much you think something will cost without doing the research first. Underestimating will leave you in a spending deficit, and overestimating will waste money on overpriced goods and services.
Common expenses for a start-up
There are several common start-up expenses you should keep in mind when setting your budget. To begin with, if your business needs a physical workspace, you will need to pay for rent, furniture, and office supplies.
Typical office rental rates are usually at least a couple of thousand dollars.
A new business will also need a website. For a quality, professional website, you will likely need to pay an additional few thousand dollars for hosting and design.
If you plan on having employees right away, you will need to immediately incorporate labor costs as a priority expense in your budget.
Other initial expenses, such as any necessary licensing and permit paperwork and advertising costs, should be part of your considerations when writing a business budget.
Unexpected business costs
When you are in the weeds of developing your business, you may easily forget to leave room in your budget for the more bureaucratic elements of owning a business.
Most businesses need some form of liability insurance. Liability insurance can protect you from suit by a client or give you a safety net in an emergency, accident, or natural disaster. Consult with a professional to determine what type of insurance your business needs and how much it will cost.
Another high cost to consider is taxes. As an independent business owner, your taxes will be more complicated than just submitting a W2. Keep track of all your business expenses and income with thorough records.
Aside from taxes and insurance, you will need to research the costs associated with any permits, licenses, or other government paperwork required to run your business legally.
Focus on a small budget
A smart approach to having a successful entrepreneurial career emphasizes the “small” in small business.
As financial news headlines often demonstrate, setting a large budget and making big promises that you can’t fulfill will cause your business to fail.
Develop an initial business plan that is conservative and sticks to a tight budget. If your business takes off, you will always have room to expand.
For instance, starting with a smaller team or no team will significantly lower your business costs, preventing the severe implications of running out of funds before you can pay your employees. Once your start-up is more stable and has a steady revenue, you can hire a larger team.
Ways to save on business costs
Fortunately, there are ways to save on business costs. When you approach your budget by thinking about which costs are essential, you may find more unnecessary expenses than you would expect.
One of the easiest ways to save money on your business is to cut out the physical office space. Many types of companies don’t need a physical office. Having a virtual office, at least until your business starts taking in revenue, is an excellent way to maintain a professional presence without wasting money on rent and utilities.
Of course, another obvious way to save money is to be a hands-on business owner. With so many accounting and payroll software options available, any business owner should be able to handle their own accounting needs.
Other strategies for saving on start-up business costs include buying supplies in bulk, working with freelancers instead of full-time employees, and using social media for free business marketing.
Starting your own business can be challenging, but familiarizing yourself with the costs and planning a thorough budget will set you up for success.
Whether you’re establishing an at-home micro-business for under $5,000 or seeking to open a brick-and-mortar store, learning the basics of the cost of business is an essential step in your entrepreneurial journey.