At some point in life, almost everyone has dreamt about the possibility of starting their own business. Maybe you’ve thought about selling your handmade jewelry online, working as a freelance writer, financial consultant, or professional dog walker. Whatever the case may be—no matter how big or small your idea is—one thing remains the same: you’ll need to finance your new business.
Of course, some ventures will require more capital than others. Investing in a brick and mortar storefront, for example, will cost much more than running an online company from home. While many aspiring entrepreneurs get caught up by the thought of how much money it’ll take to simply get their business up and running with direct expenses, they fail to even think about all the add-on operational expenses incurred down the road.
Too many startups sink rather than swim, drowning in the red because they failed to budget their future finances and overhead costs. Don’t be another statistic! If you want to turn your dream into a reality, be sure to consider these less-than-obvious startup costs.
If you’re considering launching a retail company, you’ve probably thought about the need for a payment terminal or point of sale (POS) system, unless it’s an eCommerce site that uses a payment gateway. That’ll require some type of hardware—whether it’s an old school cash register or a mobile card reader—but have you thought of the software you’ll need to complement that system?
POS analytics are critical for business (at least the successful ones!) because they allow you to gain all sorts of insights into your inventory and stock systems. What sells the most? What sells the fastest? What sits on shelves collecting dust? Which items are frequently sold together? Which ones are returned?
With this type of information, you can make informed business decisions for increased profit margins. POS analytics software typically costs about $99/month depending on which service you select.
Even if you’re considering starting a freelance business where you work from home, chances are that you’ll still need to cover various expenses necessary for keeping business operations up and running. Here are some items outside of your actuals cost of goods for materials sold that you should keep in mind:
- Technology such as computers (laptops or desktops), fax machines, scanners or copiers, printer supplies, etc.
- Office supplies such as printer paper, pens, highlighters, etc.
- Overhead utility costs for electricity, heating and air conditioning, water bills, etc.
You should allocate at least $500/month for working capital.
Freelancers and independent contractors don’t need to worry about the cost of rent—as they have the luxury of working at home or from their favorite coffee shop—but if you’re thinking of starting a new business that requires a brick and mortar storefront, then you need to be incredibly selective with which property you decide to lease.
If the rent is too expensive, you might not be able to make your monthly payments on time when business slows down. If the rent is too cheap, you might be suspicious as to why. Pay attention to properties with high turnover frequency and avoid those locations, if possible; it usually suggests that the rent is too expensive for the amount of traffic revenue it receives.
Generally speaking, your storefront should be in a public, easily accessible part of town and the more foot traffic that can walk by your door, the better. Be on the lookout for up-and-coming neighborhoods that are being gentrified if you want to score a deal on a lease in a soon-to-be promising area.
The cost of rent will obviously vary based on a number of factors including your location, square footage, amenities, and so forth. The standard rule of thumb suggests that you should at least make three times more in monthly income than you pay in rent.
Pro tip: Freelancers who don’t necessarily need a retail location but could benefit from an office environment, should check out innovative co-work spaces that could help productivity skyrocket.
What are some of the costs you’ve run into when starting a business? Let us know in the comments below!