How much does it cost to start a business? It's actually impossible to know every cost you'll face, but the more you prepare, the less you will be surprised. We as small business accounting experts prepared this guide to help you calculate startup costs.
Common Business Startup Costs
How much does it cost to start a small business? That will depend on many different business start up costs. Keep in mind that some are one-time fees while others are ongoing expenses. The following are 10 categories you should account for when crunching your numbers.
Incorporation Fees
On average, these will run you $145 across the country. Just keep in mind that they can go up or down based on the state and municipality you are filing in. This is also when you'll choose your tax structure for your small business.
Insurance
At a minimum, you'll likely need business owners, workers' compensation, general liability, and professional liability policies. These are likely to run from $50 to $50 per month, per policy. Avoid cost overruns by preventing duplicate or overlapping coverage. Also, aim for coverage that's about 25 percent more than you think you need just to be on the safe side.
Getting the Word Out
This can cover marketing, advertising, and even website development. Marketing and advertising might be 8 percent of your overall budget, whereas a fully developed website might cost you $10,000 or more.
Office Space
If you can operate from home or have a remote-work crew, you might be able to skip or minimize how much office space you rent, if any. For people in an office setting, plan on spending $300 to $1,200 per month per employee. If you offer flex or hybrid work where people spend part of the week at home with a few days in the office, then make sure you rotate desks instead of having permanent assignments so you can minimize your office footprint.
Material Needs
Your material needs might be just office supplies and some furniture. However, you might also need raw materials and equipment to manufacture the products you sell, or you might just need to buy actual inventory. This is likely to be one of your biggest expenses.
Payroll
This one might run from 15 to 50 percent of your business expenses. Don't forget to account for sick days, paid time off, jury duty, overtime, commissions, and bonuses. The actual percentage will change quite a bit based on your industry.
Professional Consultants
Any professional consultants you use in getting up and running can be very helpful. They were also expensive. Plan on $75 to $300 per hour of their service. Some of them might be crucial in the early stages and then fade away in relevance. However, truly effective consultants might be useful resources that keep contributing as your company grows, and they can be worth their weight in gold.
Research Expenses
You have to do market research to see what the profit potential is, who your competition is, and how to calculate startup costs for small business with unfulfilled needs you might be able to tap into. You can go solo or use third-party professionals. This can range from $100 to $20,000 or more.
Taxes
The federal business tax rate is 21 percent but it's better to plan for 25 percent to account for state and local taxes, too. As your sales go up, you'll pay more in taxes every month. That's a surefire sign of success though.
Utilities
You need water, power, and HVAC to get anything done. On average, you can start your calculations at $2.14 per square foot until you know your needs better each month. This is an opportunity to practice energy efficiency and going green so you can both save money and hopefully impress staff and clients alike.
How to Calculate Startup Costs for Your Small Business
If you're not sure how to calculate startup costs for small businesses, then it's useful to know a three-step process you can follow to get it done. The following actions are how to calculate startup costs for your small business.
1. Do Your Research
The first thing you need to do is make a thorough list of all the expenses you expect to face. After that, you need to estimate the costs involved with every item on the list so you can estimate things accurately. When you do your research, try to look for bargains whenever you can that don't sacrifice the quality you need for what's important.
2. Total Up Everything
There are two things, to sum up here. The first group includes the one-time costs. However, you also need to consider multiple months of the continuing expenses. Your business might not have enough cash flow for all those right away.
3. Breathing Room
When your business is in a growth stage, you should keep anywhere from six months to a whole year of business expenses saved up. Getting fully operational might take longer than you think, so your business might need a cash reserve to fall back on until it can contribute. You might also use these reserves for payroll, inventory, and marketing expenses that grow with your business.
Conclusion
Knowing how to calculate startup costs you might face is a good start, but it's even better with professional assistance. The professionals of Lewis CPA work with startups all the time. Their skills and experience can serve you well and help you get your business off to a good start.
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