It’s exciting to venture into a new business. With it comes considerable anticipation and uncertainty. No matter the type of business, it also comes with something else—start-up costs. A key question always follows, when it comes to start-up capital, how much do I need to get started?
A business needs enough start-up capital to get through the first year at a minimum. Plan for two years to be safer. Just how much is needed isn’t always easy to determine, so it’s smart to have a buffer if you come up short. For most businesses, there are standard costs to consider, as well as expenses.
Insurance
An essential business start-up cost is insurance. It would be best to protect your business from fire, flooding, natural disasters, theft, and lawsuits. Insurance isn’t an option; it’s a necessity. To be without it puts your business at high risk. You’ll also want to have an adequate health insurance plan for yourself and auto insurance for any vehicles used for the company.
Location
Every business operates from somewhere. Whether it’s a home business, office space rental, the lease or purchase of the real estate, you should have the full cost set aside for the first year. The last thing you should worry about in your first year is to run cash-short. Do all you can to plan for the cash reserves to meet rent or payment obligations.
Supplies
The cost of supplies and the cost of goods can add up quickly. You’ll want to make sure you have everything you need to operate efficiently. Computers, printers, pens, pencils, copy paper, packing materials, postage, business cards, internet, and phone access are all supplies you might need. Depending on the business requirements, you could spend thousands on capital expenses. Planning for company expenses is an area that is better to over budget than under budget so you can run the company at its full potential.
Website
It’s challenging to operate a business without a website, or at least a blog. So it’s essential to consider all the elements of constructing a website, paying for a domain name and a server, and maintaining it. If you blog, consider the cost of outsourcing if you don’t have the time or feel your skills in this arena aren’t up to par.
Salaries
If you’re going to hire employees, you’ll need enough cash flow to pay them for at least six months and preferably a year. When computing salary expenses, don’t forget to budget for unemployment insurance and other benefits you offer. This might take the form of health insurance or travel stipends. Also, don’t forget to plan for hiring fees associated with temporary employment agencies or headhunters.
Professional fees
If your business requires legal or accounting services, factor them into your start-up costs. Most business owners will need a professional team. At a bare minimum, this team will consist of a CPA, attorney, and banker. Be sure you have the appropriate allowances in your budget to cover their billing.
Allowable IRS deductions
Start-up costs might seem overwhelming. However, many of them are allowable as deductions when you file your first business tax return. You can deduct the expenses incurred to prepare to open. These deductions exclude anything subject to depreciation. Employee training, advertising, and professional fees are all deductible in full or in part.
It’s vital to keep copious records and notes as you start your business. We cannot over-emphasize the importance of having enough capital to make it through the first year. With careful planning, your business will grow to become self-sustaining. Furthermore, you’ll have the reserves to quickly repay any start-up funding you received from lenders, family, or friends.