When you start a small business, it's fairly easy to determine many of your costs. Equipment. Inventory. Supplies. Fulfillment. Determining product
When you start a small business, it’s fairly easy to determine many of your costs. Equipment. Inventory. Supplies. Fulfillment. Determining product costs, for example, is fairly straightforward.
But then there are the costs you don’t plan for. But that are just as real. Some expenses pop up that you didn’t expect, throwing your financial projections completely out of whack. Take rent: while you may be able to start your business from your home (I have), in time you may need a facility or some sort of physical space for equipment, supplies, product or, most likely, your team.
You may not be concerned about paying business taxes at first since startups that don’t generate a profit aren’t subject to corporate tax. (If you’re bootstrapping and plowing every dollar you earn back into the business, you may make a profit on transactions, but your business won’t be profitable.)
But if you have employees, you will pay taxes you may not have expected. Employees pay tax on their income, but as a business owner, so do you: Social Security tax (FICA), at 6.2 percent of the employee’s wages. Medicare, at 1.45 percent of the employee’s wages. Federal unemployment tax (FUTA), at .6 percent of the employee’s wages. Plus, most states require employers to pay unemployment tax.
And depending where your business operates, different states and localities may levy other taxes as well. And then there are employee benefits: Health insurance, life insurance, etc.
Employees cost more than just their wages. Since every employee you hire is an investment, make sure you know the extent of your investment so you can calculate the true return you will receive.
Incorporating your business isn’t particularly expensive, especially if you use an online provider, but don’t forget the ongoing annual fees.
What’s more, depending on the nature of your business, you may need to create contracts that protect your interests. Or have contracts reviewed to ensure you protect your business’s interests.
The same is true if you plan to put non-disclosure or non-compete agreements in place. Or if you create a stock plan that provides employees an ownership stake in your startup. Or if you someday enter into a joint venture or partnership.
The list of possibilities is endless– as is the list of reasons you could incur legal expenses. Don’t see having a lawyer review important documents or agreements as an unnecessary cost. What you don’t know can hurt you and can even put you out of business.
Word of mouth is great. Customer referrals are great.
But, especially early on, those things only go so far. Marketing costs can add up to as much as 25 to 40 percent of total business costs.
That’s why a movie that costs $200 million to make can need to earn $400 million in revenue just to break even; oftentimes studios will spend as much on marketing a movie as they do on making it.
When you create your plan, assume you’ll need to spend at least 25 percent of your startup funds on marketing — and maybe more once you start to generate revenue. Otherwise, your business may never grow.
Early on you may keep your books on a simple spreadsheet, but as your business grows, that may become unfeasible. Tracking expenses and income is fairly simple, but what about depreciation? Should you run your business based on an actual or an accrual accounting basis? Since you are your business, are your business and personal expenses kept completely separate?
Building a business that has outgrown simple accounting methods is a good problem to have. But it also costs money, even if only at tax preparation time.
Teambuilding activities help your employees know eachother not just as workers who get things done, but as people. No matter how closely your employees work together, that doesn’t mean they know — much less appreciate — each other as individuals.
Of course, you can’t force camaraderie. But you can foster esprit de corps. Lunches. Informal parties. Small celebrations. Team outings.
Building a great team can result in an incredible increase in productivity, but you may have to spend a little money to help create a great team.
Make sure you’ve planned for it. You and your bottom line will be glad you did.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.
This article is from Inc.com