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The cost of small business insurance, websites, advertising, taxes, and more can add up quickly, but they’re all essential for business owners who want to grow.
We’ll give you a list of common expenses for small businesses, whether they be one-time or monthly costs.
- Don’t be afraid to spend – your business will involve some high upfront costs to get going.
- However, be thoughtful – it takes money to make money, but don’t throw money at things without considering if it’s the best way to invest your limited funds.
- Build a budget – have a plan for how you’ll use your money and take note if your business spends more than expected on certain things
Common Small Business Startup Expenses
When you’re starting a new business, there are a number of one-time expenses that you need to pay before you can begin cash flow projections. What you have to pay for and the amount you’ll pay will vary based on your industry and where you’re located, but these are some common costs.
Your company will need to rent an office, which can involve putting down a few months’ rent to cover the first month, security deposit, broker fees, and the like. Expect to spend a few thousand on this.
Once you have an office, you’ll want to add furniture, change the layout, paint, remodel, and do similar work to make it fit your needs. Depending on the extent of your improvements, this can be very cheap or cost thousands of dollars.
Tools, equipment, and supplies
Your company will need tools and equipment for whatever line of business you’re in. A mechanic will need to spend huge amounts on machinery to fix cars while someone running a food stand might only spend a few hundred on equipment to prepare food.
Communications and Technology
Your company will need to buy whatever tech, such as computers or software, it needs to operate. Expect to spend about $1,000 per computer, plus licensing fees for any needed software.
Some utility companies will want an upfront deposit before letting you turn on the lights. This can add a few hundred dollars to startup costs.
Licenses, permits, and fees
You’ll need to form your official business and get any permits required for your industry. The costs for these can vary widely, so check with your local government.
A good lawyer can help you form your business, draw up contracts with vendors, and make sure you don’t run afoul of any laws while operating. Lawyers are expensive, so expect to pay $150+ per hour they work for you.
An accountant can help you do bookkeeping and track your company’s finances. A good accountant can cost more than $100 an hour.
If you’re selling physical goods, you’ll need to buy initial inventory, so you have something to sell. How much this costs depends on what you’re selling. A car dealership might have millions in inventory while a restaurant will have much less.
Advertising and marketing
You need people to find out about your new business, so advertising is essential. This can be as simple as a sign outside your location to large-scale campaigns online and on TV, so the cost of this can vary massively.
Market research will help you decide what products to offer and figure out how to best compete with other businesses. You can do your own research by running surveys and visiting the competition or hiring a firm to help.
Small business website
You’ll want a website to help you advertise and tell people what your business does. You might also want to take online orders.
A basic website can cost as little as a couple hundred a year but hiring an experienced developer to make a custom website can easily run into the thousands.
Typical Ongoing Expenses of a Small Business
After you start your business and pay its upfront costs, you’ll have to deal with some recurring expenses. For more information on dealing with expenses and retaining cash flow check out small business cash flow management.
Again, these will vary depending on your industry, but these are all common costs that companies deal with.
If you rent a physical location, expect to pay rent to the landlord each month. If you buy a location, you’ll still have a monthly cost in the form of a mortgage.
Businesses have to pay utility bills like electricity and water bills. However, they might also have to pay additional amounts for things like trash pickup depending on how much trash they generate.
If you have employees, you’ll need to pay them to keep them happy and working for you. Don’t forget to account for overtime, bonuses, paid time off, and other compensation like commissions and retirement matching.
Employee health insurance
Many employers offer insurance to their workers, so if you offer health insurance, be ready to pay the premiums for your employees.
A lawyer or accountant can help you when you’re starting up a new business, but you’ll also want to keep them around to do things like accounting or helping with legal issues that pop up.
On top of covering employee health insurance, be ready to pay for liability insurance, commercial property coverage, E&O coverage, and the like.
Credit card fees
If you have a business credit card, you might have to deal with things like annual fees or other costs incurred by using the card.
Many business owners turn to financing to start or expand their businesses. If you borrow money, you’ll have to make monthly loan payments to keep lenders happy.
Businesses, like people, have to pay taxes. Be ready to deal with both corporate taxes and payroll taxes. An accountant can be very helpful, keeping you appraised of what you have to pay and when to make payments.
When you sell inventory, you need to replenish it if you want to keep having items to sell. You’ll need to make regular supplier purchases to keep your business stocked.
Even simple office supplies like ink, paper, pens, notebooks, and envelopes cost money. You’ll want to keep your business office stocked with these, so be ready to pay for them.
Advertising and marketing
You can’t just run a one-time marketing campaign, open a business, and hope word of mouth takes it from there. You’ll want to keep your marketing campaigns going to keep drawing new customers.
Repairs and maintenance
Over time, the equipment you buy and your office will degrade, break down, or get damaged. You’ll have to pay to keep these things in good shape or deal with the cost of replacing them.
Example of Calculating Expenses of a Small Business
Before you start a business, it’s a good idea to calculate its costs to make sure that you’ll earn enough to turn a profit. (See cash flow vs. profit for further details). You’ll want to consider both its startup and ongoing costs.
Start with the one-time expenses to make sure you can afford to start the business. Find the sum of all of your expected costs. For example:
- Rent - $1,200
- Security deposit - $1,200
- Office improvements - $4,000
- Inventory - $2,500
- Permits and licenses - $400
- Legal and accounting costs - $750
- Technology - $1,500
- Marketing - $5,000
- Total - $16,550
If you’re sure you have enough to start the company, you’ll also want to consider the ongoing expenses. For example:
- Rent – $1,200
- Insurance - $400
- Utilities - $250
- Payroll - $1,500
- Payroll taxes and insurance - $700
- Accounting and legal services - $400
- Office supplies - $150
- Inventory - $1,000
- Marketing - $500
- Total - $5,200
If you expect to make enough to cover all of your expenses, you might be able to turn a profit.
FAQs about Small Business Expenses
These are some common questions about the expenses to start a business.