Costs Associated with Starting a New Business Enterprise
Starting a new business is an exciting venture, but it's essential to approach it with caution to avoid overspending. Here's a guide to help you navigate the various costs involved in setting up and running your business.
First and foremost, it's crucial to budget for an emergency fund. Financial experts recommend setting aside at least three to six months of operating expenses as a contingency for unexpected costs. Some experts even advise saving six months or more if your income or market is variable or uncertain [1][3][4]. This financial safety net will help manage unforeseen expenses or slow initial cash flow.
When planning your business, it's essential to consider all costs, not just the modern workspace and equipment. Marketing and advertising costs, for instance, can be significant and have ongoing expansion requirements. Technology costs can include website setup, business software, information systems, payroll software, accounting software, and may require outsourcing to IT-managed service providers or virtual CFOs or accountants [2].
Human resources costs are another crucial consideration. These can include wages, salaries, commissions, stipends, bonuses, special training, and employee benefits. If you're not hiring employees, costs will likely include contractors [2]. Basic supplies and equipment can vary greatly in cost, depending on the industry and the level of investment made [2].
In addition to these costs, insurance is an essential expense for a business. Insurance provides protection in case of unexpected events. Business insurance should cover customer insurance and business-related and legal liabilities [2].
To initiate a new business, it's necessary to conduct thorough market research, including industry analysis, target market identification, and determining the best tax structure [2]. This process can help you understand the competitive landscape and make informed decisions about your business strategy.
The major costs you should consider and include in your business plan are:
- One-time startup costs: Initial expenses to legally and operationally launch the business, such as business registration, licensing, branding, website setup, and initial inventory.
- Recurring (operating) costs: Ongoing monthly or yearly expenses required to run the business, such as rent, utilities, employee salaries, marketing, website maintenance, and payment processing fees.
- Fixed costs: Costs that remain constant regardless of activity level, such as software subscriptions, platform fees, and rent.
- Variable costs: Costs that fluctuate depending on the level of business activity, such as inventory restocking, shipping, and advertising spend.
- Essential costs: Costs absolutely necessary to operate legally and sell products/services, such as business registration, domain name, hosting, eCommerce platform fees, and inventory.
- Optional costs: Additional expenses that may improve operations and attract customers but are not mandatory, such as paid ads, influencer marketing, and premium design services.
The exact amounts and breakdown depend on your business type, size, and model. For example, launching an online business can cost anywhere from under $1,000 (basic setup, domain, minimal marketing) to $10,000+ (inventory, eCommerce platform, paid ads) or even exceed $50,000 for larger ventures [2].
Remember, financing for a small business can come in the form of equity or debt, and borrowing money may involve application fees and ongoing principal and interest payments [2].
In robust economic times, it's essential to create a business plan and strategy to ensure sustainability and profitability. Planning a fair compensation plan can help lower turnover and attract top talent. A marketing plan is necessary for a business and should be part of ongoing costs. Utilities costs, such as water, electricity, phone bills, and internet, are common ongoing costs that are often overlooked [2].
Lastly, obtaining necessary licenses and permits for a business can result in significant fees and require filling out forms and undergoing inspections. Marketing costs can include advertising, public relations, and promotional materials [2].
By planning thoroughly with these costs and an emergency fund in mind, you'll improve your chances of sustaining and growing your new business. Additionally, consider implementing a public relations strategy to increase the visibility of your brand and build trust with customers.
References:
[1] Business News Daily. (2021). How Much Does It Cost to Start a Business? Retrieved from https://www.businessnewsdaily.com/13038-how-much-does-it-cost-to-start-a-business.html
[2] Small Business Administration. (2021). How Much Does It Cost to Start a Business? Retrieved from https://www.sba.gov/starting-managing/plan-manage/costs
[3] Forbes. (2021). How Much Does It Cost to Start a Business? Retrieved from https://www.forbes.com/advisor/business/start-a-business/cost-to-start-a-business/
[4] Entrepreneur. (2021). How Much Does It Cost to Start a Business? Retrieved from https://www.entrepreneur.com/starting-a-business/startup-costs/363658
In the process of starting a business, it's important to consider technology costs beyond just the modern workspace and equipment, such as website setup, business software, information systems, payroll software, accounting software, and potential outsourcing to IT-managed service providers or virtual CFOs or accountants.
Furthermore, personal-finance management is key in business settings, and financial experts recommend setting aside an emergency fund, with a minimum of three to six months of operating expenses, to cope with unforeseen expenses or slow initial cash flow.
