(Newswire.net — September 20, 2021) — In August the United States Census Bureau recorded 427,842 new business applications. Furthermore, the Census Bureau is projecting that 31,994 new business startups with payroll tax liabilities will form within 4 quarters of application from all business applications filed during August 2021. According to the U.S Small Business Administration, the average micro business cost around $3000 to start, while most home-based ventures can cost up to $5000. Many entrepreneurs start their businesses with little more than a shoestring budget, which may help to explain the popularity of the LLC, as it is a relatively cheap and easy business to form.
Some business models require very little up-front costs, but regardless of the entrepreneur chooses to start a dropshipping business or provide financial services, some basic principles apply.
Walk Before You Run
Most likely entrepreneurs have high expectations for their business ventures, however, blind optimism may cause one to invest too much money too quickly. At the very beginning, it would be prudent to keep an open mind and proactively prepare for issues that may arise later. Testing ideas in a small, inexpensive way will give the entrepreneur a good indication of whether customers are interested in the product or service and how much they are willing to pay for it. If the test seems successful, the business plan can be adapted to incorporate the new data.
Understand the Cost of Your Business Type
There are three common types of business: the classic brick-and-mortar, online business, and service-based business. Identifying which one the startup will operate as will help the prospective entrepreneur determine associated costs.
Brick-and-mortar shops are physical locations where customers can go in order to buy a product or service. Your local grocery store is a great example of this. Many customers may still prefer the in-person experience as opposed to the online one, however, due to the pandemic and online shopping the classic brick-and-mortar shop has seen a decline during 2020. Brick-and-mortar shops are associated with the most amount of expenses, as the location needs maintenance and physical inventory needs to be present in the shop.
Online business gives entrepreneurs a bit more financial flexibility, as there is no physical space to maintain. Entrepreneurs have the opportunity to promote and sell products and services through digital space, however extra attention will need to be paid to certain aspects such as web design and digital marketing.
Service-based businesses can operate within a physical space or exclusively online, depending on the specific service. Most commonly service-based businesses include health care, home repair, and cleaning services.
Some of the most commonly associated costs with businesses include office space, supplies, and equipment, utilities, web design, insurance, inventory, employee salaries, market research, and advertising.
Other Startup Expenses To Take Note Of
Some entrepreneurs may have one-time startup expenses that will need to be addressed before the business is launched. These expenses may include fees to register the business venture. If the entrepreneur chooses to form an LLC, then a registered agent will be needed. Fortunately, Incorporation Rocket provides valuable resources entrepreneurs can take a look at.
Depending on the industry, the entrepreneur may need to obtain professional licenses and permits, this is especially important if operating in the medical industry. Some other one-time or infrequent expenses may include the expenses associated with web design, branding, business cards, or renovations that need to be done to a physical location.
Take Stock of Startup Assets
Startup assets can be considered to be costs or purchases associated with starting a business or inventory that allows the entrepreneur to launch their business. The most basic example of a startup asset is the number of cash entrepreneurs have available to put toward business functioning.
Startup assets differ significantly from business expenses and should be kept separated when filing tax returns. Business expenses such as rent, utilities, contract labor, and other operating costs are often tax-deductible, thereby reducing the taxable income. Assets can not be deducted. The most common type of assets include office furniture, computers and phones, vehicles, and other necessary equipment.
A Final Consideration: Total Cost Estimation
Before budding entrepreneurs start spending money on their new business ventures, it is advisable that they calculate their total costs. This can be done by creating a list of business expenses and assets that the startup will need, followed by estimating how much each item on the list will cost. Estimating the business venture’s expected profits will allow the entrepreneur to do a break-even analysis to determine at what point profits will become a reality. It would be prudent to keep inflation and ongoing costs in mind when doing the break-even analysis.
Once the expected startup costs are known, the entrepreneur can use that figure when looking for funding. Normally entrepreneurs need to create a formal report of expected startup costs so that investors and lenders can understand how their money will be used. It also helps them to determine the profitability of a business venture.