Finding and securing the initial startup funding is an exciting step toward building the business of your dreams. However, according to some research conducted by The Wall Street Journal, an estimated three out of four venture-capital-backed startups struggle and end up going under. Often time entrepreneurs far underestimate what it really costs to start a business. I have done many projects over the past two decades and gotten halfway through them and realized not everything went as smoothly as I had laid out in my business plan or my budget. This is often where we see entrepreneurs get backed into a corner taking high rate loans or crazy business partnerships. In my opinion, this perfectly clarifies the need to take smart funding available to you so that you don’t unexpectedly run out of money within a few months. However, it is not always that simple. Money doesn't just fall into our laps. So, how do you think about and plan better for those “surprise expenses”.
Slow down. Plan out your entire budget early in the process. A startup budget template can help ensure you don’t overlook ANYTHING! I want to share with you some important costs to keep in mind during the initial planning phase. Some of your costs will be one-offs, like buying equipment, but others will be monthly or annual expenses that will be a top priority. The Small Business Administration (SBA) recommends securing enough funding for the first 12 months of opening your business.
As you’re creating your budget, I want you to take the following items into account:
General liability insurance is pivotal in your business plan. A single accident or unsatisfied client could put you out of business if you don’t have insurance. Depending on your business’s needs and scope of operation, you might need additional coverage, such as:
• Product insurance in case items are defective or cause damage
• Errors and omissions insurance to cover you for professional mistakes
• Workers’ compensation insurance in case an employee is injured at work
• Commercial property insurance to protect your premises and equipment
• Commercial auto insurance if you have a company vehicle
Make sure you find a reputable commercial licensed agent. To stay on your budget, shop around to find a price that fits that budget. Depending on the types of insurance you buy, how many employees you have, your coverage, your industry and the size of your company, I’d plan to spend AT LEAST $1,250 annually in insurance premiums.
2. Business Licenses And Permits
Regulated by your business type and location, you will also need municipal, state or federal business licenses. Federal licenses cover endeavors such as selling alcohol, broadcasting on TV and radio, and transportation and logistics. State and municipal licenses are needed for broader business activities, including electrical contracting, teaching yoga, running a daycare center, or running a medical clinic used for outpatient ABA.
Your business license often has to be renewed every year or every few years. If you choose to incorporate your business entity, you can typically expect to pay up to a few hundred dollars each year.
To protect yourself and your business, consult an attorney who can help guide you in the right direction. You can also do a state search online to help clarify which permits and licenses are required.
3. Marketing Costs
Once you’re up and running, I’d recommend keeping your marketing budget low. For a startup, the SBA recommends budgeting 7% to 8% of total revenue for marketing, though new startups will want to go higher. At the early stages of your business, you may spend a higher percentage because you are building your brand name, awareness in the market and gaining leads.
Some important items to budget for in the marketing strategy include:
• A website, including one-time costs, such as web design, and recurring costs for web hosting and payment processor fees (if you have an online store)
• Email marketing services
• Digital marketing costs
Get as much as you can for free. Be active on social media (Instagram, Facebook, Pinterest--free platforms) Make sure to set up your business listing online. This will help drive local calls for free every month. You will be saving money and in return have a little extra in your budget for running local ads to help drive traffic.
4. Business Space
Renting space or purchasing a building can eat up a large chunk of your startup budget. Office rental costs vary depending on your location and business type.
If you’re finding it tricky to gain the right balance when acquiring office space, co-working spaces can give you the flexibility to expand.
A co-working space for the first five to 10 employees is the way to go, as it gives you month-to-month lease flexibility, helps save money, and gives you time to really settle in and find the perfect space for your operation. If possible, locate your office outside major metropolitan areas to save.
A good rule of thumb is you want to spend 2% to 4% of your revenues on office space.
5. The One Time Fee Category
Make a detailed list of all the miscellaneous items you’ll need to move your business forward so you aren’t caught off-guard. For example:
• Specialist items, such as professional ovens or 3D printers
• Company vehicles
• Office supplies, including paper and printer ink
• Business computers, printers, and scanners
• Subscriptions to office management software programs
Calculate all of those items & put them into your budget. Some will be recurring costs and be in a different section.
Factor in electricity, gas, water, internet, phone, cooling and heating bills to budget for your utility costs. In my experience, many people do not plan for all the expenses that come with running a business. The key takeaway is when you are acquiring business funding, accept as much as you can (as long as the prices and terms are fair). There are often many surprise expenses business owners will face, but if you plan well, your business has an improved chance of survival!