It takes money to make money, but many business owners fail to consider all of the costs of running a business. Expenses go beyond supplies, inventory and leasing office space.
Are you overlooking these top costs of running a business?
One of the first expenses you’ll encounter when running a business is incorporation. The cost of incorporation isn’t necessarily high, but it should be taken into consideration.
If you hire a lawyer, the costs of incorporation can jump up to $500-$1,000. It may be worth the expense of hiring a lawyer. He or she will take care of filing the necessary paperwork and also ensure that you won’t run into any trademark issues with your business name.
Taxes are a complicated issue, but they cannot be ignored. The amount you’ll pay will depend on the type of entity you choose and how much revenue you generate.
An LLC will provide a flexible tax structure. Owners can decide to be taxed as a corporation or a partnership. If taxed as a partnership, profits and losses will be passed through to the owners of the company. Partners pay self-employment taxes on their shares of the partnership profits.
C corps, on the other hand, are typically double-taxed. Because they issue stock and dividends, they pay taxes on corporate profits and on dividends issued. Founders must also pay a first-year franchise tax prepayment. The fee for this can range from $800 to $1,000.
For most businesses, insurance is a necessary cost. Many states require a business to have insurance in order to operate legally.
Insurance provides your business with protection. For example, general liability insurance can provide you with coverage for legal expenses if someone slips and falls in your store and decides to sue.
Along with general liability, your business may also need:
- Workers’ compensation insurance
- Medical insurance
- Professional liability insurance
- Commercial vehicle insurance
The costs of these policies will vary depending on your level of coverage, the insurance company, your industry and your location.
Insurance can be expensive, but it’s a necessary cost. You’ll be happy that you paid for your policy if you ever need to use it.
It’s easy to overlook the cost of your office overhead when you have so many other expenses to think about. But these costs can easily eat into your profits.
Office overhead can include:
- The space you operate out of
- Printing paper and ink
- Software subscriptions
Any costs associated with the upkeep of your business is considered overhead. Failing to budget properly for these expenses can wreak havoc on your cash flow. Something as simple as forgetting to budget for ink, which can be very expensive, can leave you in the red.
Trademarking can be a lengthy and costly process. It can cost a business $400 or more to apply for a trademark in one category and $300 or more for each additional category in which you want to apply.
While these costs are high, the cost of not trademarking your brand and products will be even greater once your business starts producing revenue. Someone else will trademark your name, and it will cost you even more to deal with these legal repercussions.