Mind Your Expenses: The Hidden Costs of Running A Small Business
Many individuals with a dream and an entrepreneurial spirit set out to start their own business. That dream can quickly turn into a nightmare if you don’t have the financial resources to keep the business running.
The first thing every entrepreneur should do is get educated about the costs that go into running a business. A good budget helps, but there are many hidden costs of running a business that can quickly run you into the red.
These overlooked items include:
- Incorporation Costs. Incorporating your business has definite advantages, like creating tax benefits and shielding your personal assets from liability. According to Entrepreneur, hiring a lawyer to help you incorporate can cost you between $500–$1,000, in addition to your jurisdiction’s filing costs and periodic mandatory filings.
- Insurance. Depending on the nature of your business, you may need Liability Insurance or Errors and Omissions Insurance to protect yourself against potential lawsuits. As a business owner, you may also want to purchase disability insurance in case a debilitating illness or injury leaves you unable to work.
- Founder Agreements. If you’re going into a business partnership, especially with a roommate, friend or romantic partner, treating the arrangement casually can backfire. It’s in both of your interests to hire a lawyer to draft a founder agreement and set expectations. This can set you back hundreds of dollars depending on the complexity of your situation.
- Trademarking. Filing trademark registration can help protect aspects of your brand and prevent others from copying yours. The US Patent and Trademark Office (USPTO) has a detailed primer on the benefits of federal trademark registration, as well as the costs involved. USPTO has several different types of trademarks and the applications fees will cost you several hundred dollars. Plus hiring a trademark lawyer to help you navigate the process will obviously increase the cost.
- Taxes. We all know that death and taxes are two of life’s few certainties, but many business owners fail to set aside extra money for taxes, which can have catastrophic consequences. In the US, depending on your situation and business structure, you may be required to file quarterly estimated taxes. Also, your tax rate may be higher as a business owner than as an employee due to the self-employment tax. However, you may able to offset this with business deductions.
- Credit Card Fees. If you accept credit card payments, factor in the cost of credit card processing, also called interchange fees. This is typically a per-transaction flat fee and a small percentage of each transaction.
- Office Supplies. A few boxes of pens or reams of printer paper may not seem like much, but those little costs do add up over time. Try to maintain digital files whenever possible to avoid printing—it’s economically and environmentally smart!
- Office Overhead. As a growing business, you can expect to outgrow your home office, which means you’ll need to consider renting office space. Depending on your location and amount of space you need, it can set you back hundreds of dollars (or more) per month.
- Memberships and Subscriptions. Joining your local Chamber of Commerce or NFIB Chapter can help grow your business, but those membership fees aren’t cheap. One networking mistake business owners make is focusing on groups with professionals exactly like them. Commiserating and swapping stories from the trenches can be helpful, but you should also be present where your high funnel audience is, so you’re not networking in a vacuum.
- IT Support and Web Development. Nowadays, customers expect businesses to have an online presence so they can read company information anytime, day or night. In addition to paying the initial cost of website set-up, you’ll have ongoing costs such as tech support, web hosting and domain renewal to keep your website running.
What other hidden costs have you found in starting or running a small business? Leave them in the comment section down below and let Crowley Accounting & Consulting Services help with your financial decisions.