The True Price of Launching a Business

Starting your own business is an exciting journey. When you decide to launch a business from the ground up, you usually create a small budget to manage various costs. However, it’s easy to overlook hidden expenses. Here’s a rundown of what you should consider as the real cost of starting a business.

The expenses involved in starting a business can vary widely based on factors such as industry, location, and the entrepreneur. For instance, the Small Business Administration (SBA) reported that the average startup cost in 2009 was $30,000, although some businesses managed to start with just $3,000 or less.

Because of this wide range, it’s challenging to predict exactly how much establishing a new company will cost. That said, there are ways to budget your startup expenses effectively. Here are some essential costs to consider:

First and foremost, if your business sells products, you’ll need to purchase inventory. Besides raw materials, you also have to account for shrinkage—loss due to damage or theft—where you’ve paid for goods but don’t get any return.

Having the right insurance is crucial. You’ll likely need liability insurance to protect your business, and possibly other types of coverage such as workers’ compensation, errors and omissions insurance, and property insurance.

If you’re renting a physical space for your business, don’t forget to factor in those monthly costs, which can run into hundreds or even thousands of dollars.

As a business owner, you’re responsible for paying estimated taxes yourself to cover self-employment and income taxes since there’s no employer withholding taxes from your paycheck.

Employee wages represent another significant expense. Besides their salaries, you’ll also have to cover employer contributions for taxes and potentially offer benefits like retirement plans or health insurance.

You might need professional help from lawyers and accountants to set up your business structure and manage finances.

Be sure to obtain any necessary licenses or permits required to operate your business, which vary by location and industry.

This list isn’t exhaustive. There are additional costs you might encounter, such as advertising, credit card fees, recruiter fees, or employee training costs, so think about all possible expenses specific to your business.

Fortunately, many startup costs are tax-deductible. You can subtract certain expenses like insurance, employee wages, and rent from your total income before calculating taxes, reducing your tax liability. For more detailed information, consult the IRS.