If you’ve ever started a business, you know it involves some clear-cut costs. Office space or storefront rentals, equipment, initial inventory, license fees, legal advice – all of these are initial expenses you might expect to pay just to get up and running.
There are a number of less obvious expenditures, however, that might surprise you when you hang out your first shingle. Here are some of the more hidden costs behind opening a business:
- Administrative costs. These are all the things you took for granted when you worked for somebody else. While you might expect to spend a lot on computers, printers and phones, you shouldn’t forget about some of the other necessities: filing cabinets, paper and toner, pens and paperclips, software and applications, utilities, cleaning supplies and, of course, the ubiquitous coffee. All of these and more can add up to a big chunk of cash.
- Insurance. Depending on what products or services you offer, you may not need a lot of business insurance right away. But eventually you may need to invest in one or more business policies to protect your investment or your employees. Liability insurance, errors and omissions insurance, workers’ compensation insurance, property insurance, cyber insurance and plain old general small business insurance may all come into play. Of course, if you’re in a business where risk is unavoidable – as in the medical or construction field – you’ll need plenty of good insurance right up front.
- Taxes. When you worked for somebody else, you didn’t need to worry about most taxes. Having your own business, however, makes you quickly realize just how creative taxing authorities are in chiseling away at your hard-earned income. You’ll need to pay (or at least file) everything from quarterly estimated taxes to local business taxes, from employee taxes to sale taxes. And don’t forget – if you’re self-employed, you’ll need to pay 100% of the social security taxes due. If you have employees, you’ll be responsible for the employer’s share of that, too.
- Employee costs. If you hire employees, you’ll have to take into consideration the cost of providing benefits and perks. In addition to taxes and insurance, you may need to pay out-of-pocket for employee healthcare (or at least a portion of it), bonuses, retirement, uniforms and gear, and other incentives. According to research from the MIT Sloan School of Management, the overall cost of each employee can run from 1.25 to 1.4 times the base pay.
- Loans. Many new business owners expect to take out loans to finance the startup of their business. What some business owners don’t realize is that they may have to pay a premium for those loans. The less experience you have, and the more risky your field of business, the higher the interest rate a lending institution is likely to charge you. Of course, if you’re paying a lot in interest each month, it affects your business cash flow, too. So make sure you work that into the equation for your business plans.
Hiring a good accountant can make all the difference between succeeding and failing in business. 1-800Accountant is a virtual accounting firm merging the convenience of technology with live support from real professionals. We offer personal, year-round accounting services to individuals and small businesses at an affordable price. Schedule your consultation with America’s leading small business accounting firm.