Costs of Starting a Business
Business startup costs vary from inexpensive, to very costly. For example, the costs involved of starting a home mail-order business are extremely different when compared with startup costs of a restaurant. Careful planning, and an intricate knowledge of your industry, will lead to accurate startup cost estimates.
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Creating a Legal Entity
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Decide if you want your business to be a sole proprietorship, corporation, limited liability company or a partnership. Each of the entity types have advantages and disadvantages.
For instance, as a sole proprietor you'll be able to claim business profits and losses on your individual tax return. However, a major drawback of being a sole proprietor is that you have no protection of your personal assets. If someone sues your business and your business can't cover the debt, your personal assets are at risk to cover the debt.
Corporations and limited liability companies cost more money to form than other business entities. In addition, forming a corporation may require more paperwork than the other business types. The costs of registering your business and creating a legal entity vary from state to state. Conduct research to determine which entity best suits your business goals.
Office Space
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You'll need a place to conduct your operations. This expense may not apply to Internet or at-home businesses. If you plan to have employees or maintain a physical location, like a bakery, you must include the cost of office space in your budget.
Your office space costs will consist of a lease or mortgage payments. In addition, you must account for the cost of utilities like electricity, phone and water. If you have a storefront, you may need to include the cost of insurance as well. Most retail businesses are required to have general business insurance, plus insurance for glass breakage.
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Equipment & Supplies
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Consider the cost of equipment and supplies for your business. This cost won't be as large if you have a small home-based business. However, you'll need to consider the costs for large items like computers and office furniture. In some cases, especially for a new business, it may be more cost-effective to purchase used office furniture and equipment.
Make sure you've created a budget for standard office supplies such as paper, pens, ink cartridges and other miscellaneous supplies. If you're starting a larger business, you may be forced to include the costs of a copier, fax and a phone system as well.
Licenses & Fees
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Depending on your type of business, you may need to pay for certain licenses to operate your business. For example, if you're starting a restaurant, you may have to pay hundreds or thousands of dollars on a yearly basis to receive health permits or a liquor license.
Even if you choose to remain a sole proprietor, you'll still be responsible for registering your business with your government regulating agency. The fee for registering your business varies from state to state, but usually costs no more than $50.
Professional Services
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Certain businesses may require the assistance of lawyers and accountants. If you're forming a limited liability company, you may decide its best to have your lawyer file all necessary documents. Lawyers may be of service in the area of drawing up and looking over contracts for your company.
You may need the services of an accountant to aid in the completion of your business taxes, or to draft your company's annual reports.
Depending on the complexity of your business, you may require the implementation of an accounting system. Be prepared to set aside a minimum of $1,000 to cover any professional fees your business may incur.
Cost of Goods Sold
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If you're selling products in your business, it's imperative that you incorporate your cost to sell those products into your startup budget. Be aware of order minimums required by your suppliers. Large minimum orders can result in huge initial startup costs for your inventory.
If you're providing a service instead of selling a product, you should know what it costs your business to provide that service to your customers. For example, if you're a cleaning business, you'll need to consider factors such as employee hours and use of company vehicles to determine the cost of providing services.
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