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What are startup costs?

Co-written by: Kevin Clark


Starting a new business can seem overwhelming and the startup costs can be intimidating. What are the startup costs? The startup costs can include incorporation fees, insurance, equipment, taxes, payroll, office space, and inventory. The type of business and the industry you are going into will make the startup costs different and what applies to one business may not apply to the next. While a salon may need a building that requires monthly rent, a home-based online company will likely not need to pay rent on an office or building space. Don’t let the thought of startup costs deter you from your goals. Here are five ways to ease the stress when dealing with startup costs:


1. Create a solid business plan. A good business plan will include a section that thoroughly estimates (keyword) expenses, profit, and revenue for up to the next 3 years. Keep in mind that this is just an estimate and things may vary from the plan even in the first year so planning some financial cushion is a great idea.


2. Account for incorporation or licensing fees. One of the first steps when starting a business is to choose what type of entity fits your business needs. Incorporating your business means filing fees that range depending on what state you’re in. If you decide to not incorporate, you’ll still likely have to apply for federal or state licenses or permits.


3. Save where it makes sense. Every business will have different priorities but in general consider ways to save. Think about whether working from home would be suitable for your business. Consider hiring a social media consultant instead of a full-time marketing person to start or take some free online courses yourself to learn how you can do it well on your own.


4. Find your funding. There are many resources out there to help you find startup costs financing. Chances are it will come from debt and equity financing. Small business loans can be a great option, but lenders typically don’t feel comfortable offering loans until a company is more established and has clear confirmation of profitability. Sometimes applying for funding the wrong way can affect your credit score, don’t want to just encourage someone to get a lot of loan apps in.


5. Manage your expectations. It is important that you don’t expect the revenue from your business to start helping your costs during the beginning stages. It may take a little bit for business to get steady enough for the revenue to ease your costs. That’s okay as long as you plan for it and are prepared to cover your costs through financing or other means until your business revenue is more capable.


Being a business owner comes with a lot of homework but with our highly connected world, you have endless resources to help inform and guide your choices. Remember, when in doubt, ask a professional. Your CPA will be invaluable during the time of starting up your business and navigating choosing an entity, setting up taxes properly, and getting your bookkeeping and payroll on track.

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