As an entrepreneur, you might be skeptical about the costs that are essential and those that are a waste of money. But, at least for the first year, you would certainly want to hold on to every penny.
Startup costs are the expenses incurred while starting a new business. Because every business is unique, different types of startup costs are required. For example, online businesses have different needs than brick-and-mortar stores, and fruit juice shops have different needs than pharmacy stores. However, a few expense categories apply to almost all business types.
These expenses are typically divided into two categories:
Operating expense: Expenses incurred daily to run your business, including rent, insurance, payroll, and other costs.
Capital expense: Larger purchases or investments that become assets that benefit the organization, such as equipment, a building, or a vehicle, are referred to as capital expenses.
In the context of being an entrepreneur, spending money before earning it seems counterintuitive. However, some non-negotiable organizational costs are associated with getting your new business up and running.
Which expenses are worth investing in, which should you put on hold and which are entirely unavoidable? To help you maximize every penny, you invest in your small business; we’ve broken down the necessary costs for you here:
Labor: Labor is almost certainly the most expensive cost you’ll face. A survey claims that labor consumes as much as 70% of your operating budget. Therefore, assembling the right team is one of the most important aspects of any startup. Entrepreneurs must assemble the best people for their startup to achieve their business objectives. Failure to hire the right personnel may result in operational inefficiency, delayed work, debt accumulation, or organizational afflictions at various levels.
Expenses for Research: Before starting a business, it is necessary to conduct extensive research on the industry and consumer base. Some business owners opt to work with market research companies to assist them in their evaluation. Research and development costs are growth investments that can help you gain a competitive advantage. If a business owner chooses this route, the cost of hiring these experts must be factored into the business plan.
Technology: The technological expenses are another one of the initial startup costs that should not be overlooked. A business’s technical expenses include the cost of a website, information systems, and software, such as accounting and point-of-sale software. In addition, don’t forget about other technology expenses such as high-speed Internet access, printers, payroll software, mobile phones, etc. Some small business owners outsource these functions to other companies to save money on payroll and benefits.
Insurance: Risk is a part of running a business by its very nature. Depending on the nature of your business, you may be required to obtain one or more types of insurance. A business insurance policy will cost you money upfront, but it will provide you with much-needed peace of mind. Again, the type of policy you require will vary by business. Many business owners choose general liability insurance, but others may require product liability insurance or even property insurance if they have a physical location.