Getting a business off the ground can be expensive. It’s essential to have a solid business plan, a nest egg or startup loan money, and great organizational skills to keep track of your spending.
Even if you think you’re well prepared, though, you can be assured that in those first months, unexpected financial needs will surface. So you also have to make sure there’s some buffer in your budget.
To get started, here are five costs you should prepare for when you launch a business. Keep in mind that these may vary considerably depending on where you are. Offices cost a lot more in New York and San Francisco, for example, than they do in Cincinnati or Salt Lake City.
How well you know your region and your industry will play a major role in how accurate your budget turns out to be.
Masterful Marketing
Because of growth of sectors such as social media marketing, many new companies assume their marketing costs will be considerably smaller than they would have been in the past. What many overlook, unfortunately, is that every other business on the market also has access to those platforms, so you’ll still have to spend a good amount if you want your efforts to stand out.
It’s all right to start unloading handfuls of free Facebook posts and tweets, but they will take you only so far. Free platforms aren’t really free if you want to score big.
Office Space
As indicated above, you’ll need an office, and the cost of office space varies wildly depending on where you’re planning to operate. Depending on the size of your business, you might be able to rent a few empty offices in a larger company’s space to get started, but it may not be worth the hassle if you outgrow those offices quickly.
As an alternative, think about choosing a flexible, no-frills space you can partition in various ways as your company grows.
Comparative KPI
KPI — key performance indicators — are great metrics for telling you how well your business is doing, but the numbers are most effective if you apply them in terms of comparisons. Knowing what your operating expenses are, for example, is worthwhile, but that number is more meaningful when evaluated relative to your total revenue.
At first, the ratio may be unimpressive, or even demoralizing, but as you absorb one-time costs such as office furniture and equipment, these values should start to improve. If you’ve got a few team members but you’re short a data scientist, consider assigning different people different KPI to monitor, and filter the data they receive to keep them focused on net profit, accounts payable turnover, or return on assets.
The easier you make it for your team to read and interpret the indicators, the more control you’ll have over your business’s finances.
Legal Costs
You can have a lot of legal costs when starting a business. You’ll need help drawing up contracts for employees, contractors, and clients, filing your articles of incorporation, and obtaining certain occupational licenses.
You might also want to have your lawyer review any major contracts you’ll be signing with service companies. Assume you’ll have to pay your lawyers more than you’d like during those first weeks as you make your way through all the red tape involved in launching a business.
Keep a Close Eye on Petty Cash
Petty cash may seem less of a concern today than when people started enterprises in the past because we do most of our purchasing online now, but you may end up being surprised. As you’re setting up your office in the first few months, someone will go to complete a task and suddenly realize he or she doesn’t have all the necessary tools.
If you haven’t opened a company credit card yet, petty cash may be the easiest (indeed, the only) way to address such needs immediately. Keep a close eye on cash expenditures during this time and cut petty cash transactions entirely as operations stabilize and (one hopes) supply needs become less urgent.
These are just five of the costs you’re well apt to encounter if you open a new business, but there can be many more. Invest in some good bookkeeping software and be vigilant about your spending to keep your finances on track; but on the other hand, don’t let a few bumps in the budget hamper your pursuit of the dream.
All businesses start out facing some financial struggles; it’s what you do to get beyond those limits that will make your name.
