When you plan to turn a passion into a profitable business, it’s hard to know where to begin. Overwhelmed but excited about owning your own business, you might be tempted to throw caution to the wind and move forward without considering startup costs. But, failing to prepare for initial expenses could wilt your business before it has a chance to blossom.
Before you sell your first product or service, calculate startup costs and figure out how you’ll pay for them.
Common Start-up Costs
Are you planning on working from a home office or does it make more sense to lease space in a building? Either way, you’ll want to add utilities, equipment, and office supply costs into your budget. If you rent a space, remember that you’ll likely need to pay a security deposit in addition to rent before opening your doors.
Renting a coworking space can be less disruptive to your home life and your wallet. Often more affordable than renting an office, a coworking space is a place to work solo or with other employees in your business. Many are fully furnished and include access to conference rooms, office supplies, printers, Wi-Fi, shredders, and more.
An online presence is a must if you hope to compete with other businesses. Web hosting, software programs, and network security are just a few expenses you’ll likely encounter as you welcome customers to your new business. If you hire employees, you may also need to consider using online payroll services to help with W-2s, 1099s, benefits, and other human resource matters.
Word of mouth might help build your business, but probably not at a rate fast enough to remain profitable. New companies often rely on paid advertising and marketing services to announce grand opening plans and direct a steady stream of new customers to their business. Whether you pay for online ads, use postal mailing circulars, or hire a marketing firm, factor in the costs of attracting customers to your new business.
Depending on your business type and jurisdiction, you might need a license, permit, and insurance before making your first sale. For example, if any food or beverage preparation is conducted, a retail food establishment permit is required. Liability insurance could help protect your personal assets, give you financial peace of mind and demonstrate responsibility as a small business owner.
If you sell a physical product, you’ll want to have plenty of inventory on hand in the early stages of your business. The last thing you want to do is run out of stock just when your business is taking off. Calculate how much inventory you might need by networking with other companies in your area.
What are my options for financing business startup costs?
- Business credit cards can cover startup expenses, pay for unexpected costs, and fill cash flow gaps throughout the life of your business. They can also simplify expense management since you can use your account statement to track one-time and recurring expenses. Like cashrewards Visa® Credit Card for businesses, some cards may even offer unlimited 1% cashback on all purchases.
- Business lines of credit could help meet larger expenses, such as payroll, until your business becomes profitable. Funds are typically available during a specified period during which you can borrow money and make payments as needed. Like a credit card, you only repay the amount borrowed.
- Business term loans could help cover major expenses such as construction costs for a facility or remodeling a bedroom into a home office. These funds are provided in one lump sum with pre-set repayment terms. As a Small Business Administration (SBA) Preferred Lender, Magnifi Financial offers SBA Loan Programs to help fund these and other business expenses. Magnifi Financial is a Preferred Lender with SBA, which means you’ll experience expedited and local decisions, processing, and funding on SBA program loans.
While your business may have different startup costs, knowing the most common expenses encountered by entrepreneurs could help gauge how much money you’ll need as you prepare to officially open for business.