When it comes to starting a business, saving up and getting the initial money you’ll need to get the business running can be a challenge. While getting your business through its grand opening is a great achievement, if you haven’t planned out your business finances well, you may find yourself caught by the many unexpected costs that come with a business. When you work up your budget, make sure that you include the following common, yet often overlooked, business expenses.
Before you start your own business, make sure to spend some time researching the cost of business insurance. This expense is a must for all business owners, but the type of insurance you’ll need will vary depending on the type of business that you’re running. According to Insureon, general liability insurance, the policy that most business owners will need, can be very affordable. According to an analysis of 28,000 business owners with general liability insurance, the median cost of those policies was $500 per year.
Business owners may need additional types of insurance, like workers’ comp insurance or even umbrella liability policies for increased coverage and protection. It’s best to call a number of different insurance companies and request quotes for the types of insurance your business will need so you can get a sense of exact costs.
Recruiting Top Talent
To give your business the best chance at success, you’ll need to recruit top talent, but that comes at a cost. Posting on reputable job boards, like Indeed or Idealist, can get expensive, especially when you’re hiring for multiple positions. As part of your recruiting strategy you may want to build up or improve your branding, and investing time in attending job fairs and campus trade shows can also help to get you in front of a wide pool job seekers.
Recruiting talented employees is only the beginning of the expenses that you’ll see. Don’t forget about other expenses, like health insurance and retirement contributions, workers comp insurance, and the expense of offering employees paid time off, vacation, and other perks. To attract top talent you have to be competitive within the market and that typically means you must offer benefits. Training can be another big, and necessary, expense. That includes the time you invest in initial job training your employees on-site, as well as off-site conferences, workshops, and any advanced training that your staff might need.
When it comes to retaining employee talent, you’ll need to offer some perks that make your business a desirable place to work. In addition to traditional benefits like health insurance and generous vacation policies, other benefits like the ability to work remotely and flexible work schedules can help with employee retention. You may need to invest in additional technology, like laptops or webcams for employees, to make these remote work situations possible, but this can be a worthwhile investment if it means retaining the employees that you’ve invested time and training in.
Marketing and Advertising
Marketing and advertising costs can also add up, but they’re necessary and are particularly important when you’re just starting up your business. Print, radio, TV, and even online advertising can all be cost-prohibitive, especially if you’re working with a limited marketing budget.
Group advertising can help you to save money yet still get exposure for your business. With group advertising, local businesses in the same industry collaborate and pool their marketing budgets together to increase their advertising reach as a group. For instance, let’s say you own a home repair business. By working with other home repair businesses in the same area of the state, but with different service areas, you can create an ad that represents all of your businesses. Then, with your group budget, you can afford to get that ad on TV, where it will reach people within all of the business’ different service areas. It’s an effective way to increase your advertising reach without necessarily driving up your budget.
Many new business owners overlook the importance and the expense of investing in their retirement, but this is a significant expense that businesses need to budget for. When you’re an employee, your employer typically contributes toward your retirement in addition to what you contribute out of your own paycheck. When you’re self-employed, you’re the only one making those retirement contributions, so you’ll need to budget even more toward retirement to make up for this difference.
When it comes to investing in retirement as a self-employed business owner, you can choose to use an IRA or a Solo 401(k). With an IRA, you can contribute up to $5,500 per year, and you can deduct those contributions from your traditional tax return. If you’re self-employed but hire staff, you aren’t eligible to use a Solo 401(k). But, if you don’t hire staff, using a Solo 401(k) allows you to make larger contributions toward your retirement – as of 2017, the annual contribution limit was capped at $54,000 or 100% of your earned income for the year.
Before you cash your self-employment check each week or every two weeks, set some money aside for retirement so that it never goes into your checking account. This helps ensure that you make regular contributions to set yourself up for future financial stability.
Planning for Financial Success During Your First Year
The first year of running your own business is usually the hardest, and many businesses fail during this difficult year. However, there are many strategies you can use to avoid small business failure. Start by creating a strong business plan and approaching your business with the goal of keeping your expenses down until you’re up, running, and bringing in profits.
It’s also important to plan to reinvest in your business, especially during the first few years of its existence. By reinvesting in the business through efforts like marketing, you’re giving your business a better chance of success in the future. Just be prepared to make some sacrifices during this time so that you can enjoy increased profits later on.
As you’re starting your business, it’s also important to create a financial plan for your business. Your plan needs to include details on how you’ll acquire needed funding, how and when you plan to generate profits, and how you’ll manage your business taxes. With a clear, detailed plan, you’ll have a better idea of your business’ financial state, any changes that you may need to make, and what you might expect from your business during the next few years.