Common Small Business Expenses to Know Before Starting Your Business
by Fundid on Jun 27, 2023 8:00:00 AM
Starting your own business requires a lot of planning and careful management to ensure long-term success. One of the key areas you need to focus on is your finances. Knowing how much money you need to invest upfront and the ongoing costs of running your business is vital to ensuring your venture stays afloat.
In this guide, we'll be discussing the key expenses you need to budget for when starting your own business and tips and tricks for setting up a cash flow management system that will help you track your finances efficiently.
Create Your Business Plan First
One of the most important things you need to do before starting your own business is to create a comprehensive business plan. This plan outlines your vision for the business, your target audience, marketing strategies, your pricing strategy, and your financial projections. Creating a detailed business plan will help you understand the amount of money you need to invest upfront and running expenses for the first few months. Once you have a business plan in place, you can start to fill in the blanks with the initial expenses you will incur.
Common Small Business Expenses
While each business is unique and will have different expenses to account for, there are some common small business expenses that most business owners will need to budget for.
For example, if you have a retail shop, you'll need to include rent and utility costs in your budget. On the other hand, if you run a consulting firm, you may be able to use your home office and avoid the extra expenses associated with renting office space. It's important to carefully consider your business type and corresponding expenses as you start your business journey. Let's check out some of the most common small business expenses to help you get started:
Rent is a common overhead cost for businesses, especially those that operate in retail or office space. The amount of rent that a business pays will depend on the size and location of its space.
Utilities are another common overhead cost for businesses. This can include costs such as electricity, gas, water, and sewage. The amount that a business pays for utilities will depend on the size of its space and the type of business they operate.
Insurance is an important overhead cost for businesses as it protects them from liability in the event of an accident or injury. The type and amount of insurance that a business needs will depend on the type of business they operate.
Related Reading: Types of Business Insurance to Consider
Businesses are required to pay taxes on their income, property, and employees. The amount of taxes that a business pays will vary depending on the jurisdiction in which they operate. Seeking guidance from a tax professional can be beneficial in ensuring compliance and maximizing tax deductions.
The tax requirements will vary based on your entity type, whether you're operating as a sole proprietorship, partnership, limited liability company (LLC), or a corporation.
Related Reading: How Your Business Structure Impacts Your Taxes
5. Licenses and permits
Businesses may be required to obtain licenses and permits in order to operate legally in their jurisdiction. The cost of these licenses and permits will vary depending on the type of business and the jurisdiction in which they operate.
Example licenses and permits you might need to obtain:
- Business License: A business license is a document that allows you to operate your business within a specific jurisdiction.
- Zoning Permit: A zoning permit is a document that allows you to operate your business in a specific location.
- Health Permit: A health permit is a document that allows you to operate your food-related business in a specific location.
- Building Permit: A building permit is a document that allows you to construct or make changes to a building.
- Sign Permit: A sign permit typically includes specifications for size, location, and lighting of the sign.
6. Advertising and marketing
Advertising and marketing are necessary expenses for businesses in order to promote their products or services. The cost of advertising and marketing will vary depending on the type of business and the size of the target market.
Some of the common marketing expenses that small businesses may incur include website design and maintenance, social media advertising, print and digital advertisements, and marketing materials like flyers and brochures. While it may be tempting to cut back on marketing expenses, it's important to remember that investing in marketing can lead to increased visibility and revenue. To help manage these expenses, it's a good idea to create a marketing budget and prioritize which expenses are most important for your business goals.
7. Salaries and wages
Businesses also incur overhead costs in the form of salaries and wages for their employees. The amount that a business pays in salaries and wages will depend on the number of employees they have and the types of positions they hold.
These costs go beyond the employee's actual paycheck and include payroll taxes, insurance premiums, and benefits such as retirement plans, paid time off, and health care coverage. It's important to factor in all of these costs when determining an employee's total compensation and budgeting for your business.
Related Reading: 5 Types of Benefits to Offer Your Employees
8. Software systems
Whether your business will require accounting software to track your finances, HR & payroll systems to manage your staff, or a point-of-sale system to process customer transactions, the monthly costs can soon add up.
However, these expenses should be viewed as an investment as these systems can streamline your business's processes, saving you both time and money in the long run. It's essential to consider the practicality of each system and prioritize which ones are essential for your business operations.
Set Your Business Up for Success with the Support of Fundid
Navigating the world of business financing can be nerve-wracking but, with the right preparation, you can put yourself in a better position to succeed. Being aware of some key expenses that entrepreneurs are likely to face when they start a business will help make the lifelong dream of owning and operating their own business possible with fewer setbacks.
If this guide has helped you understand what it takes to budget for when starting your own business, consider subscribing to our newsletter to continue to get helpful advice related to obtaining venture money and growing your organization.