Starting a business requires spending money to get up and running, but how much you spend depends on different factors. That is, the needs of your business dictate how much you ultimately spend. A cost checklist is thus much needed for starting up any business.
According to the Small Business Administration (SBA), you’ll need anywhere from $2,000 to 5,000, but it’s possible to put out less money than that and still get your operation running.
There are a number of reasons why you need to create a list of costs that are going to be incurred before you can officially say you’re open for business. In the event you’re looking for a loan, you can show a potential lender that you have a grasp on where the money needs to go.
This also shows the lender that you have a plan of action to earn money to repay the loan. The list also helps you figure out your break-even point, or the amount you need to recover and repay yourself, a lender, or the business once everything is in motion.
Planning out your startup also helps you identify what you’re going to need to operate your business. It also helps you figure out how much to set aside to pay for everything that’s needed for a smooth launch of your startup.
The following is a complete cost checklist to help you estimate how much each aspect of starting a business is going to cost.
Cost of Registering Different Types of Business Entities
Filing a C or S corporation with the Department of State costs $125, but an LLC is more expensive. Also, there is a significant difference in LLC formation costs between the states.
It costs only $75 to form an LLC in California, for example, but $205 to form an LLC in New York state, and you have to publish a notice in two different newspapers in order to fulfill the filing requirements there.
This adds another cost to forming an LLC, and the actual cost varies depending on the location of your registered agent. That is, you have to publish your notice in the county where your registered agent is located. For example, Albany is one of the least expensive counties, and New York County (Manhattan) is among the most expensive.
After you’ve satisfied the publication requirement, the newspaper gives you an affidavit of notification, which needs to be submitted to the Department of State with a $50 filing fee for regular speed and $75 for expedited.
Retaining someone or a service to handle the administrative aspects of starting a business is a cost that’s worth paying.
Letting an expert do the work on your behalf gives you the freedom to focus on putting your new business together and provides you with the assurance that the administrative paperwork is error-free, correct, and done in a timely manner.
Legal and Professional Fees
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Legal and professional fees cover the cost of a lawyer and/or accountant who handles the administrative functions that are part of a startup.
Some of the work they handle includes registering an LLC in New York State, setting up your accounting, advising you on a business strategy, and filing federal and state taxes for your business.
They can also apply for an employer identification number (EIN) so they can remit payroll and quarterly estimated taxes to the IRS.
You can usually find an administrative service provider that bundles these services into a package that helps you save money on costs and makes them predictable.
Insurance
You’ll want a business insurance policy to protect yourself against liability, but the type of policy you need depends on the type of business you’re running. For example, you’re operating a brick-and-mortar store that welcomes the public to come inside.
At the very least, you’ll want a premises liability policy, worker compensation for employees, commercial auto if you have a delivery vehicle, and general liability, to name a few.
Running a home-based business doesn’t require as much coverage, but it’s a good idea to have a general business liability policy to protect your operation. Business insurance policies can be bundled together to help you save money and make your costs predictable.
Operational Costs
These costs are often referred to as “the cost of doing business” as they are ones that you must pay on a regular basis to keep your business operating. They include:
- Rent
- Utilities
- Advertising
- Accounting fees
- Permit and license fees
- Office Supplies
- Goods
- Maintenance
- Bank fees
These costs vary and depend on the type of business you’re running and its location. Running a service business from your home will incur expenses such as utilities and office supplies, but you may not need a business license or permits depending on your type of business and local government regulations.
Office Space
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You may find that you need an office space to separate your business from your home for several reasons. It may be that renting an office space for a few days a month is sufficient, or it may be that you need a place to welcome visitors during business days.
A shared office is relatively inexpensive when compared to maintaining a regular place for business, and may be a better option to keep costs down during the early days of the startup.
Utilities and Office Supplies
These are necessities with costs that tend to fluctuate from month to month. You can compensate for the fluctuations by taking the month with the highest costs and using it for your monthly budget.
Money that you do not spend can be brought forward to the next month, or spent on another cost.
Employee Salaries and Benefits
Hiring W-2 employees means you must pay their FICA taxes on their income. That means you have to take out their federal and state income taxes, and your share of the employment tax.
If you are offering a 401(k) or other retirement scheme, you have to fund your contribution to the agreed-upon percentage or dollar amount.
Marketing and Advertising Cost Checklist
Advertising is vital in order to tell the world that you’ve got something to offer, no matter if it’s good or a service. It is something that can be done on a modest budget at first, but it is a fact that you get better results when you spend as much as you can afford.
Marketing is the act of identifying your ideal customer and advertising directly to them. For example, your business revolves around anime, which means you want to target a younger demographic that has an interest in Japanese culture and cartoons.
That means your advertising needs to be targeted at individuals who are most likely to buy anime and its related products.
Advertising tends to come before marketing because you want to cast a wide net to capture as many customers as possible during your startup period.
However, if you are experiencing uncertainty about your potential customer, you can purchase demographic data to help you figure out who to target with advertising, and include it as one of your costs.
Branding and Website Development
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Your business has an identity that becomes its brand. That is, your business becomes known among customers as a retailer that sells a certain type of service or goods and delivers something unique to the customer.
This cachet is something that you can turn to your advantage through branding and developing your website.
Creating a brand identity involves designing a logo that tells the viewer about your business at an initial glance.
For example, you are starting up a toy store for children and want customers to know that you sell toys. Creating a logo with an item that is commonly associated with children’s toys is an effective method of brand communication.
The cost of a good logo is around $200 on average but can be more or less depending on the skill of the artist and the complexity of your design.
The amount you pay for website development varies greatly, and the cost depends on your needs. The more complex your website needs to be to carry out certain functions, the more you can expect to pay.
A simple website with text, some web forms for contact information, and images usually costs the least, and you can expect a fully functional e-commerce site to easily reach into the thousands of dollars.
Licenses and Permits
Some types of businesses require permits and licenses that are issued at the local, state, and federal levels, depending on the type of activity you are engaging in. The cost of the licenses and permits vary and are subject to change.
The fee schedule is typically posted online by governments and their agencies, making it easy to find out how much you need to set aside.
If you are not sure about what you need to maintain compliance, you can retain a professional to research and apply for the correct permits and licenses on your behalf.
Banking and Transaction Fees
There may be little to no charge when opening a business bank account, but you may find that the bank charges fees for failure to maintain a minimum balance, fees on credit card transactions, and statement fees, among others.
Check or ask for a list of fees prior to opening the account so you can anticipate how much you will be charged if you violate these conditions.
Banks typically charge a fee during or after a transaction has been made, which means you can’t always set aside money to cover the charges.
However, knowing how much money is deducted from a typical transaction can help you anticipate the actual amount you receive from a payment.
Conclusion
There is no getting around the fact that you need to spend money to get your business started. But if you take the time to identify what you need to support your operation, you will find that you can keep your costs manageable and predictable.
Not every business is going to need a dedicated office space, and you may find it easy to be the only source of labor and deliver your goods or services on time.
You can start your business on a shoestring budget and still be successful, especially when using a cost checklist to figure out what and where you need to spend your money.
The cost checklist can also be used as a road map for your startup, reminding you of what still needs to be done as you complete each task.
It is also great for tracking your budget, and figuring out if you need to allocate more resources to an area that could use a little more money.
Ultimately, creating a cost checklist results in a supportive document that keeps you focused on your startup, ensures that you have the right corporate structure in place, and ensures that you have everything you need to succeed.
