Startup Costs For Business

By Sean Stevenson – Latest Revision March 28th, 2021

Understanding Startup Costs For Business

Startup costs for a new business are rarely discussed in a timely manner.  In fact, they are often only fully realized in hindsight.

All too often, prospective entrepreneurs instead conjure up the romanticized version of the office space (the kind we might see on television). 

Instead of carefully considering the hard slog ahead, there is a tendency to envision the warmer and more fuzzy parts of being our own boss.  The corner office with a lovely view comes to mind.  Along with the potential to make a sizeable income on our own terms. 

For some, it may even be the idea of escaping the 9 to 5.  Or perhaps its simply a matter of finding a more permanent, desirable, and lasting form of financial freedom.  

This can bring about irrational exuberance.  The kind we had when we were younger and more naïve.  This can be dangerous.

In point of fact, these are the last abstracts that should dominate our focus.  To survive the initial Startup costs for business, we need to use a fact-based approach only.  We must face the hard truths as quickly as possible.

To this end, meticulous planning is essential.  Any failure to plan is akin to inviting disastrous results.  It is therefore entirely unwise to become distracted by “what ifs.” 

Most Startup businesses are biased towards their own success.  They believe things will simply “fall into place.”  Yet the idea that customers will be lining up to purchase a newly minted product or service from a relatively unknown business model, is a most unlikely affair.

Often, this is what destroys most businesses before they have even begun.  They fail to account for the actual Startup costs for doing business in the real world.  Things take time to progress in business.  There will be inevitable pitfalls and unforeseen setbacks.

It takes tenacity and perseverance to succeed.  However, by taking the time to plan for your own Startup costs, you will be greatly increasing the odds of achieving lasting business success.

To this end, below are a series of important facets for your consideration.  Some of the most important Startup costs for any business are as follows:

You Should Start by Creating a Business Plan

Creating a business plan should be the first thing you do.  Going forward, you may even consider hiring a consultant to help you develop a realistic business model and mindset.

Do not even think about anything else.  Until you have a firm grasp on the details, you have no viable business to speak of.  The old adage, “a failure to plan is a plan to fail,” certainly applies here.

Start by considering all of the costs that will be involved in your Startup.  Leave nothing out.  Be brutal, down to the last penny.

Once you have a general idea of the real initial costs involved, you then need to start considering how you can mitigate or even remove some of those costs entirely.  If you simply cannot do without them, then start considering how long it will take your business to start generating revenue. 

You want your initial Startup costs to be reimbursed as soon as possible.  Profitability is key, and so is timing.

In essence, your business plan should read like a roadmap.  Do not make it too complicated or overly ambitious in the beginning.  Unless you are already well-versed in your chosen industry, you’ll run a much higher risk of failure by making things overly complicated. 

Remember, you are building a foundation.  Once the foundation is in place (and you are more comfortable), you can start to create more complexity and pursue more ambitious goals. 

Over time, your efforts should be leveraged in the same direction.  Try not to deviate whatsoever from your industry and your core strengths.  Never be afraid to learn new things either, but also stick to a “master plan” so you do not get unnecessarily side-tracked.

While diversification can make sense for larger companies, you will be unlikely to thrive without a deliberate and focused niche early on.

Consider Research Costs

It has become increasingly common for Startup costs in business to include the hiring of market research firms. 

These firms can offer you deeper insight into your chosen industry.  This in turn, can give you an important edge over your competition.

In a globalized world, invaluable research information can be a huge asset when developing your product, service, or even your marketing approach.

Try to think of market research firms as “scouts.”  They explore the existing business landscape for you, saving you invaluable time and energy. 

The data they collect can prove invaluable for a savvy Startup that wants to hit the ground running. 

Be sure to ask them what is “priced in” to their services.  Often, there is a lot of “extra” material to be had at no additional cost!

Understanding Equity and Debt Borrowing

Startup costs often naturally include debt or borrowing.  Often, a private or public investor may provide a significant amount of capital to get the ball rolling.

There are two primary ways for a Startup to raise capital:

  • Equity financing – Is a process of selling shares of a company in order to raise funds.  This may serve either a short-term or long-term approach to growth for the business.
  • Debt financing – Is the opposite of equity financing.  This approach uses financial instruments in order to raise funds.  Bonds, notes, or bills are all financial instruments that can be used to leverage debt in an effort to raise capital.
Startup Costs For Business

Depicted above is a visualization of the basic difference between equity and debt financing.

Small Business Loans

Most small businesses will seek to gain financing in the form of a small business loan.  Many financial institutions tend to offer these with fairly standard rates attached.

Business owners must carefully consider the Startup costs involved by taking on such a loan, as the interest payments can be considerable over time. 

Moreover, be sure to “shop around” to see what’s available.  Do so online and in-person.  You never know what sort of terms you can find unless you really try.  Negotiating always helps, also. 

Bear in mind the seriousness of taking on a small business loan, however.  Should a default on the interest payments occur, it is highly likely to prove financially costly.

License, Insurance, Permit Fees, and Otherwise

Depending on your industry, you may be expected to procure a license, specified insurance, or even permit fees to conduct your operations. 

In the instance of health-related Startup’s, a thorough inspection and permit may be required.

All of these can prove costly.  They must be carefully factored in when considering the expenditures and time investment involved.

It should also be noted that insurance is especially important to safeguard your business from potential liabilities during -and after- operating hours.  Covering your employees, assets, and customers, is essential to protecting yourself from unforeseen events that can cripple your business with legal fees.

Equipment and Supply Costs

All businesses require supplies and equipment to perform their basic day-to-day tasks.  When considering how to be acquire your own equipment and supplies, consider whether you wish to lease or buy.

Leasing can be a viable option for a Startup business that wishes to purchase at a later date.  However, it should be noted that buying equipment outright, can often save money in the long run. 

In some industries, leasing may prove to be the better alternative.  Some heavier equipment may be incredibly risky and costly to purchase.  In such a case where equipment is not often used, leasing may prove the better choice overall.

Whether making a purchase or committing to a lease, be sure to review the exact nature of the stipulated costs involved.  Consider any potential liabilities and hazards before making your final decision.

Technological Considerations

Many companies today make use of a website, or software to enhance their business capabilities. 

At times, it may be prudent to outsource some of these activities entirely.  For example, outsourcing payroll and benefits to a registered firm, can be highly advisable to save time, effort, and even money (it can be cheaper to hire a payroll firm rather than a full-time employee!).

Some web development groups also excel at providing persistent online customer service, and exemplary IT services.  They can run your website for you, giving you more time to focus on your business.

Marketing

Startup costs in the business world would never be complete without marketing and promotional considerations.

Today, marketing is more competitive than ever.  It is prudent to consider hiring a marketing firm.

A marketing firm can offer you an extensive library of promotional activities and advertising.  This will ensure that customers hear about your products or services.  

On the other hand, doing your own marketing and learning the intricacies of promotion, can also be a huge advantage.

A solid marketing plan will ensure that they will be eager to do business with you. 

In either case -as always- be sure to factor in the relevant Startup costs for your business model.  Customers need to be able to find you, so marketing is -after all- essential to your success!

Startup Costs For Business

"Ideas are easy. Implementation is hard."

-Guy Kawasaki, AllTop Co-Founder

Salaries and Wages

The pricing of labour both general and specialized, can prove costly.  A business Startup choosing to engage with the hiring of employees, must consider the price of paying out salaries, wages, and even benefits.

Historically, companies that have failed to honor the contracts they signed with their employees have suffered horrendous public humiliation.  So, be sure to factor in these costs carefully!

Emergency Funds

Beyond planning ahead for all incurred Startup costs for your business, you should also actively create an emergency fund.

Should unforeseen costs arise (and they likely will), you must be prepared for it.  An emergency fund will ensure you are not caught unawares with additional liabilities you failed to envision.  In fact, most companies fail because they lacked an emergency fund during crucial periods of operation.

Without an emergency fund, you run the risk of insolvency and eventual bankruptcy. 

Sole Proprietorship

It should be noted that sole proprietorship is far-removed from the Startup costs of corporations or partnerships.

Where partnerships and corporations often endure more registration and legal fees, a sole proprietorship is a more straightforward affair.

This can make sole proprietorship business models attractive in terms of their initial Startup costs.

If you have no problem “going it alone” then you may wish to investigate sole proprietorship as a viable method of doing business.

Startup Costs for Business – Conclusion

Remaining focused on the finer details and reality of Startup costs can prove challenging.  However, it must be noted that a failure to plan is a hazard that should not be chanced.

Instead, consider the advice listed here in full:

  • Create your business plan.
  • Hire a business consultant if you lack experience.
  • Consider the costs involved.
  • Mitigate or eliminate unnecessary Startup costs for your business.
  • Hire firms if you deem it necessary to help you.
  • Consult with experienced businesspeople who offer you mentorship.
  • Launch your business only when you are ready.

Above all, take your time.  The process of preparing yourself for business success is not something to be rushed. 

By remaining meticulous and embracing a learning mindset, you can greatly increase the odds of your own success.

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