There is more to going into business for yourself than just getting business cards printed or sticking up a web page—the modern-day version of “hanging out your shingle.” Unanticipated business expenses can wreak havoc on both your business and personal life, so it’s good to be prepared. Below are some of the common costs of starting your business so you can know what to expect.
State and Federal Fees and Licenses
The earliest expenses you will incur will be during startup are during the process of making your business a legal entity. This involves working with your state to file and pay for a license to conduct business. If you will be doing business under a business name or an assumed name you will have to complete “doing business as” (DBA) paperwork.
Taxes
Another early requirement is to set your business up with the state and federal taxing agencies. This will include receiving an Employer Identification Number (EIN). Prepare to pay quarterly as cash starts to flow. Entrepreneurs have many deductible items, but they also have to pay all social security taxes. Remember, no one is withholding for you. A good practice is to set up a separate account for taxes and transfer money into there as it comes in.
Professional Services
You may not think you need ongoing accounting, legal, or other help, but it is advisable to use these professionals as you begin. An account or CPA will help you to set up your initial business books. It is good to talk with an attorney to make sure all contracts you use are correct and binding. You should also talk with an insurance provider or agent to get coverage for any business liability. Also, some businesses will also need to get bonded which is a guarantee of your performance to your customers.
Start-Up Equipment Costs
No matter what, every self-employed entrepreneur has some equipment needs. These equipment needs will be specific to the type of business activity you will be undertaking and can include a new or upgraded computer and printer, specialized tools, or perhaps even a business vehicle.
Transportation
Gas costs will rise and fall with the market. So, if you’re traveling to visit prospects, be prepared to visit the pump more often. Also, your vehicle may need to be able to carry your product or equipment, or you may need to be able to take clients to lunch. Is your vehicle up to the task? You may need to clean out the trunk and the back seat and have it detailed.
Sole Proprietorship Office Space
Whether you use your home, your car, your best friend’s garage, an office suite, or Starbucks, you will need a business space. If you are planning to a home office, you should keep that space as an office-only space for easier accounting purposes. The Internal Revenue Service (IRS) is very specific about what is considered a home office.
Marketing and Websites
Marketing is a wide area that may include additional cell phone time, business cards, advertising in local print media, and printing flyers. If you print items yourself you will need to consider the cost of printing, paper, and ink. Don’t let those hidden costs sneak up on you. For example, with an inkjet printer, the ink is often more expensive than paper, especially if you print in color. Your business will probably need the creation of a website and perhaps want a domain name connected to your business. You may want to pay someone to create a site for you. If you pay someone be sure you have the rights and access codes necessary to change and update the information contained there. Although networking is probably the least expensive marketing you can do, it is important to attend networking events for certain types of business. Such events incur costs for membership fees, meals, parking, travel, and other such charges.
Banking and Credit Card Processing Fees
If you want to accept checks and credit card payments under your business name, your bank will likely require you to have a business account, rather than a personal account, even if you’re a sole proprietor. If you will be accepting credit cards you may need an account that allows those transactions. You will need to have the proper agreements and equipment in place for your merchant account. Merchant accounts generally have an initial cost for equipment plus monthly fees or minimums.
Other Sole Proprietorship Start-Up Costs
If you are moving into a sales type of sole proprietorship, you may need to upgrade your wardrobe. Think about what image you want to project to your target market. If you’ve been wearing business casual at work, and suddenly you have to go buy a couple of new suits, it can add up, and unfortunately, it’s not tax-deductible. You may need to get certified in specific skills or abilities to better serve your customers. The cost for this type of ongoing education can be high but will give you an expanded customer base. Some states will also have requirements for certification.
