1. Breaking Down the Types of Costs
2. How to Determine an Initial Budget
3. Hidden Costs of a Startup

The fees for starting a business vary, which is why it's important to seek help from an expert to determine how much money you'll need. Common examples of startup expenses include:

  • Rent.
  • Mileage.
  • Supplies.
  • Wages.
  • Business registration.
  • Professional fees.
  • Marketing materials.

Breaking Down the Types of Costs

When trying to plan out your finances, you'll need to consider the different kinds of costs you'll be paying. For example, you might think about whether the costs are:

  • One time or ongoing. When starting your business, there are a lot of one-time costs you'll need to pay, such as buying equipment or supplies. During this time, your money going out might be more than the money you're actually making, so you'll need to account for that and try to make it up the next month. Ongoing costs, on the other hand, account for things like utilities or rent. Because you pay these every month, you should craft a budget that accounts for these.
  • Essential or optional. Sometimes, there are expenses you simply can't get around, such as repairing a broken server or hiring a new employee to help with the workload. In other cases, expenses might be optional, such as relocating to an upgraded building or investing in new office furniture.
  • Fixed or variable. Your fixed costs stay the same on a month-to-month basis, meaning you can play for them accordingly. Variable costs, however, might change depending on how much you sell or use a certain service. Include a stretchable budget here to cover the potential expense range.

How to Determine an Initial Budget

To improve your chances of keeping costs low and controlling spending, it helps to plan out your startup costs before you jump into action. Better yet, this can help you choose an appropriate financing option, know the amount of income you'll need to break even, and manage your cash flow.

  1. Create a list of the costs you're expecting to face.
  2. Separate these costs into various categories, such as capital expenditures or expenses.
  3. Rank each cost in priority from high to low.
  4. Once all items are listed, give each one a dollar value.
  5. Add these dollar values together to see the total cost of your startup. If the total cost is more than your budget, see what items you can cut out.
  6. Adjust the budget as things change to keep organized.
  7. Before finalizing the budget, double-check figures to make sure you haven't underestimated the total cost.

Overall, the U.S. Small Business Administration estimates that most microbusinesses cost $3,000 to start, while home-based franchises can run anywhere between $2,000 to $5,000. Keep this in mind when planning your initial budget.

Hidden Costs of a Startup

While you might think you have everything planned out for your fledgling business's finances, make sure you consider the following hidden costs that often sneak up on business owners:

  • Expensive loans. Most business owners need a loan to finance their startups, so banks and lenders often take advantage of the situation. They might offer poor terms, especially if you have a bad credit score or lack business experience. With bad terms, you might end up spending thousands more than you had originally planned in interest payments. If you happen to miss any loan payments because of this, it will further drag down your credit score, preventing you from future borrowing.
  • Perks and benefits for employees. Naturally, you will have already accounted for your employees' salaries, but what about additional perks? Statistics show that the overall cost of keeping your employees on board can be 1.25 to 1.4 times their basic pay. These extra costs come in the form of healthcare benefits, workers' compensation, taxes, and vacation time. This means that if you're paying an employee a $50,000 salary, that could actually equate to $70,000 in the long run.
  • Shrinkage. There are a number of ways you could lose product, including shoplifting, data entry errors, employee theft, or vendor fraud. This type of loss costs businesses an estimated $45 billion each year in the United States alone. If shrinkage is an issue for you, take steps to prevent it, such as hiring a loss management supervisor or being more thorough with your paperwork.

If you need help with the fees for starting a business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.