Starting your own small business is a big step toward becoming financially independent – but sadly, about half of all small businesses fail within five years. Being cognizant of these potential financial pitfalls will help ensure your venture’s success.
Many Americans dream of starting their own small business. The idea of truly being your own boss is appealing enough, but often, the dream of having a small business take off and turn into a large business or enterprise level operation (and the financial success that comes along with it) is the main draw that causes an individual or partners to take on the risk.
And there is significant risk with starting up a business, rest assured. When you consider the rough average of $30,000 cost involved with starting a business, and the fact that about half of all business fail within five years and only a third last more than 10 years, the odds are stacked against the risk-takers and entrepreneurs.
But a big reason for many failures is failing to budget for expenses that tend to crop up. In this article, we’ll take a look at a few of the more common yet oft overlooked costs that come along with starting a business. If you’re aware of these expenditures ahead of time and can adequately prepare for them, you’ll be going a long way toward assuring your business can beat the odds.
Permits, Licenses, and Trade Organization Fees
Often, the first spark of inspiration that comes with starting a business is the idea for the service or product in question. If it’s an especially great idea, entrepreneurs can run the risk of rushing headlong into the execution phase without spending enough time in the planning phase. And one of the first elements of the planning stage that seems to get bypassed is dealing with your local government.
This will vary heavily on both your location and your type of business, but you’ll likely have to apply for at least one license or permit to operate your business in the specified location. The cost can vary dramatically, as well – a soy farmer in Cedar Falls, Iowa will likely spend much less on permits and licenses than a restaurant bar in Manhattan. You can do a bit of research on what types of fees and permits to expect at the IRS small business database.
Also, while not mandatory, joining a trade organization or industry association can really help you get connected to people and businesses within your industry. You might also be able to bounce ideas and questions off a fellow business owner in your trade and/or area. The Center for Association Leadership can help you find relevant groups.
Some business owners will try to skip out on all but the most necessary insurance in an attempt to curb monthly expenditures. You probably don’t need us to tell you that that strategy is at best lacking foresight, and at worst catastrophic. How many employees you have (if any at all), what kind of business you operate, whether you run your organization from home or a separate brick and mortar space, and more will all come into question. Thankfully, Allstate has a pretty good FAQ for business owners to consider which kinds of insurance are most necessary.
Unless you’re a wunderkind genius who knows the ins and outs of business law, accounting, AND the trade that your business is in, you’ll probably need some help. That’s where having an accountant and lawyer come in handy. A surprising 46% of small business owners reported that they do not work with an accountant. When the finances get really good (or really bad), having a professional on-hand to navigate the books but also to give fiduciary advice is key – especially since as a business owner, you’ve got a lot of other things to think about.
Bringing on a lawyer, especially initially, can help take care of some of the legalese minutia that can drag down the layman – air-tight contract wording, corporate structure, tax issues, and more are all second nature to a good attorney.
More and more businesses are online and require less and less of a physical presence, so these types of ventures will understandably cost less in terms of utilities. But even an online only business will have some utilities to plan for – an ecommerce site, for example, will still need to pay the lights and power in the building they store their online goods. Even a small, one person outfit run out of a home office will have considerations – Internet, a new cell or land line for business purposes, and increased power and heating/cooling usage that comes from being home and online all day all need to be taken into account.
Credit Card Fees
We’ve already covered that while accepting debit and credit cards can give your business an extra expense, it’s absolutely worth it in the long run. Not accepting plastic at your operation can cost more in lost business than you’ll ever save in processing fees.
But there’s no denying that card processing fees are an additional expense of running a small business, and often one that owners fail to anticipate. Thankfully, Valued Merchant Services not only offers a wide variety of systems to fit the size and type of any business, but we also will beat any competitor’s processing fees – guaranteed – or we will give you $500. Learn more.