Starting a Business? Here’s How to Calculate the Startup Costs

You can’t have a business without a plan. It’s so easy to get caught up in the dream that inspires starting a business that many hopeful entrepreneurs just think, “I’ll make it work somehow.” But hoping for the best without looking before you leap can land you in hot water. Taking time to calculate the startup costs of your new business can help you create a roadmap that guides your finances through the ups and downs of the first few years.

Think about you- as a business owner, you have to pay for everything from incorporation fees to multiple types of business insurance. According to the U.S. Small Business Administration, the average start-up cost was approximately $30,000 back in 2009. But sole proprietorships and micro-businesses may only require a few thousand dollars in seed money. Either way, creating a budget ahead of time means that none of these numbers will surprise you.

Incorporation Costs

Getting your business up and running will require a number of fees, permits and licenses—all at a cost. For example, let’s say you want to start an LLC. As U.S. News & World Report points out, you may need to hire a professional (like a tax professional or an attorney) to help you set up the LLC and apply for the right permits and licenses. Filing fees vary throughout the state; Kentucky’s is around $40 while Massachusetts charges $520, according to Legal Zoom. Do some digging on your state’s requirements so you have a realistic idea of how much the initial paperwork will cost.

Supplies and Inventory

What will you be selling? Or, if you’re providing a service, what equipment and supplies will you need to be able to provide value to your clients? These starting assets may include setting up a physical shop (complete with shelving, payment processing station, etc.) or a behind-the-scenes workshop (like a home office with specialty technology). Determine what is essential and what is optional and come up with a realistic figure for how much it will cost you to get the materials you need to function.

Ongoing Expenses

Of course, investing a chunk of change at the beginning doesn’t mean you’re out of the woods on paying the bills. While one-time expenses tend to disrupt your cash flow noticeably once, ongoing costs tend to be a bit sneakier. Ongoing costs typically don’t fluctuate by day, week or month—rent for commercial space and utilities, for example, are the same month after month. You’ll have to forecast for these reoccurring costs as you create your startup plan.

Business Insurance

To protect your fledgling business, you’ll need a few types of business insurance: general liability, professional liability, property coverage and workers’ compensation (when you hire your first employee). It’s much easier to calculate the cost of monthly premiums ahead of time than to skimp on coverage and find your business slammed with costly and unpredictable litigation down the road!

Want to crunch the numbers on how much business insurance will cost your newbie company? Compare rates with CoverHound today!