Being your own boss seems more attractive, than working for someone else. You’re in control of your income and can run the business in a way that suits you.
Due to economic reasons and job insecurity, it has inspired many to start a side hustle so that they’re not wholly dependent on the income from their 9 to 5, while others have taken the plunge, quit their full-time job, and dived into the work of entrepreneurship.
Suppose you’ve been toying with the idea of launching your own business whether it’s a side hustle or full-time. It’s essential to be aware of the startup costs; the costs involved in opening a business.
These costs can differ widely depending on the industry, the scale, and the type of business you are starting. You have to do your research in order to ensure you have enough capital to cover your startup costs.
Also, many of the costs are recurring. So you must be able to have enough money to cover these expenses for a few months, as it will take a while before the business sees profits.
Not having sufficient funding is akin to setting your business up for failure before it starts.
Common startup costs include:
The cost of equipment varies by industry. It can cost you as little as $100 but can also run into thousands of dollars. Let’s say you’re starting a small digital marketing agency or offering graphic design services from home; you probably won’t need to buy equipment if you already own a good computer and printer.
But, if you want to open a beauty salon, you will need to purchase equipment such as massage tables, styling chairs, and other tools like commercial-grade hair dryers.
While some of these items you only need to buy once off, others may need to be replaced, upgraded, or maintained over the years.
You need to buy your stock if you’re a product-based business and plan on selling products. Also, you will need inventory if you’re in manufacturing because you will need raw materials to make products.
Whether you’re a retailer, manufacturer, or service-based company, you will need inventory,. Maybe you’re a retailer where you buy items from a wholesaler and sell it to the public as is, or you may customize the product before reselling it.
A manufacturing-based business will need raw materials to make its products. For example, maybe you’re a fashion designer who wants to sell your designs. Your inventory may include fabric, thread, zippers, and clothing labels in this case.
Service-based businesses like restaurants and cafes must stock ingredients to prepare their dishes.
Getting the right amount of inventory is essential. Having excess inventory ties up your cash flow and impacts the business’s liquidity. But not having enough stock can cause you to lose customers.
When you’re just starting, it’s advisable to minimize your overheads as much as possible, and one way to do this is to decrease the amount you spend on rent. If possible, start your business from your home so that you don’t have to rent an office or workspace. This will work for some companies like home industries, online stores, and accounting services that don’t need too much space.
It may also work for other types of businesses if you have a garage that you can convert or a room that you can turn into an office. For example, suppose you’re a nail technician. In that case, you can easily convert a spare room or garage into a small salon. Or if you’re a fitness instructor, you can build a gym in your garage or offer workout classes on your patio or in your garden if it’s large enough.
Some businesses like restaurants, coffee shops, or retail outlets can’t be operated in your home. In this case, you will have to rent a space in an area with a lot of foot traffic to attract customers. It will be helpful to work with a real estate agent specializing in rentals for small businesses as they will know of the best spots available and can guide you along the process.
To secure a rental space, landlords usually require a security deposit and, in some cases, a few months’ rent. They will also perform credit and background checks before leasing the space. Many confuse these two terms and use them interchangeably, but you must know what a background and credit check difference is.
A background check determines if you have a criminal record, giving the landlord an idea of your character, while a credit check indicates your financial status and whether you can afford to pay the rent. Landlords will only offer you a lease if you pass these checks.
Freelancers or Consultants
To cut costs, many entrepreneurs attempt to do everything themselves, but this could cost you more in the long run. It’s best to hire professionals to perform business functions you are unfamiliar with. Hiring a freelancer is more cost-effective than hiring full-time employees, but the costs of hiring them can add up.
Freelancers or consultants you might want to consider hiring include tax accountants to help you with your taxes or someone to help you build an eye-catching website or to help design your business logo.
It’s common for small businesses not to dedicate any money to marketing, especially when starting, but this is a big mistake. Your marketing budget should include physical materials like signage and banners if you have a store or office space.
It’s a waste of time and resources to open a business when people don’t know it exists. Advertising and marketing should be an ongoing expense, but you would probably need to invest a sizeable proportion at the beginning to get the word out.
Starting your own business is an exciting challenge and can put you on the path to financial freedom, but before you get started, you must ensure you have enough funds to pay the startup costs.
- Nerdwallet: 14 Business Startup Costs Business Owners Need to Know
- Businessnewsdaily: Startup Costs: How Much Cash Will You Need?
- Netsuite: 10 Small Business Startup Costs
- Waspbarcode: 10 Hidden Costs of Running a Small Business
- Shopify: The Cost of Being the Boss: What Business Owners Spend in Their First Year