Are you planning on launching your own company? If so, there’s a hard truth you have to face before embarking on this potentially life-changing venture: 20 percent of new businesses in the U.S. fail within two years of opening their doors. But why?
According to Entrepreneur Magazine, the most common causes of new businesses going under include the inability to control expenses, failure to establish a lucrative sales funnel, and failure to create effective business systems.
However, these cautionary warnings shouldn’t stop you from moving forward with your entrepreneurial dreams if you have a firm plan in place. To develop your business plan, you first need a deep understanding of all the expenses associated with launching and operating a business.
License, Permits, and Incorporation
Businesses have to secure federal, state, and sometimes local licenses and permits to legally operate. While some requirements, such as a general business license, apply across the board, others are industry-specific. For example, businesses that sell food need certain health permits. These licenses and permits come at a cost, and some have to be renewed frequently.
You also have to pay incorporation fees, which vary by state and by business structure.
Legal and Consultant Fees
For reviewing your financial statement and general financial guidance and advice, you’ll likely need to hire accountants who can prepare tax returns and help you save on your taxes. For legal issues, you should take advice from an attorney, who can keep an eye on your contracts, ensuring that your business interests and legal rights are protected.
Your Office or Storefront
A grand ambiance provides the exposure your company needs and helps guarantee a steady flow of customers. You may need to paint the walls, install shelves, add a counter, or replace the flooring. You can handle some of these independently, while more significant projects may require a contractor.
Office supplies such as paper and pens are often a one-time investment, while electricity bills and daily operating costs are some of the recurring expenses you will face. For optimal cost reduction, you can start by looking for co-working office spaces that rent amenities.
Payroll and Taxes
Naturally, the costs for payroll and taxes vary according to the classification and number of employees you have. On average, payroll and taxes usually take up around 25 percent to 50 percent of your total budget. These expenses mainly include:
- Employee net pay
- Employee bonuses
- Commissions and incentives
- Paid time off
- Overtime pay
To save money, you can consider working with a CPA who will determine your deductions and ensure you get the best possible returns.
Though most business insurance forms aren’t legally required, most business owners consider various insurance plans requirements for survival. Common forms of business insurance include:
- Workers’ compensation insurance
- General liability insurance
- Property liability insurance
- Professional liability insurance
- Commercial auto insurance
- Data breach insurance
The best way to secure the best coverage and rates is to request small business insurance quotes from multiple insurance companies and decide for yourself which policy suits your startup. To save money, consider bundle policies for discounted rates.
It can be tricky to determine how much inventory you require for your new business, and many business owners start out by purchasing too much or too little. About 17 percent to 25 percent of your total budget should be allocated for your inventory expenses to stay on the safe side.
Cost of Equipment
When starting a business, you’ll either have to rent equipment or pay the price upfront. From computer software to heavy machinery, equipment costs can add up. To cut down your future expenses, you can invest in durable equipment that will serve for several years rather than lower-grade models that will only help you get by for the short-term.
Website and Marketing
Web design and digital marketing are essential to any business’s success, but the associated expenses should only add up to about 10 percent of your total budget. However, you can pursue social media marketing strategies that will effectively expand your startup’s reach for free. To cut down on costs, you can also hire budget website designers and create content yourself.
Projections You Can Count On
Although calculating your startup’s cost can be a complicated task, if you assess these expenses thoroughly and plan accordingly, you can set the right framework for your business to grow and thrive.