Finance Globe

U.S. financial and economic topics from several finance writers.
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The Financial Side of starting Your Own Business

The big question many entrepreneurs have is, "How much will it cost to start my own business?" Some have started their own successful business with nearly nothing, and some have needed to use up their life savings or take out huge loans. It all depends on the type of business you plan to run. You may already know what kind of business you want to start, or you may just know you want to become self employed but aren't sure what you want to do. Consider the financial cost of starting or buying your own business.

Where will you work?
Do you need to have an office or store-front? Or can you work from home? Buying or leasing a space, and all the services needed for that space, including utilities, insurance, and maintenance, can amount to be a huge portion of your overhead. On the other hand, a home office or a workshop in the garage will eliminate many of the additional expenses involved in running your own business. Also, the space you use for your business can be tax deductible, as long as the space is used solely for business needs. Be sure to check with your local zoning board to ensure you are permitted to run your business from home.

Many types of businesses will need liability insurance.
If you will provide a service at your customer's homes or maintain a store, then general liability insurance is a must. This will protect you in the case of personal injury, property damage, and advertising claims. Some professions, such as doctors and technology consultants, and others businesses that provide a service, need to carry professional liability insurance. An "errors and omissions" policy will protect against lawsuits for negligence, malpractice, errors, and omissions. Product liability insurance should be considered if you will sell a product that could potentially harm someone or damage property if it were to malfunction.

Be prepared for the fees for various necessary licenses and permits.
A business license is required nearly everywhere, and it's normally issued at the municipal level. Most cities require a business license even if it's a home-based business. Also, you may need additional state licenses, depending on the type of business you run, the products you sell, or the services you provide. You may need a professional license such as for a doctor, lawyer, cosmetologist, electrician, realtor, auto mechanic, or private investigator. Your business may also require a liquor license, contractor's license, or various other licenses from your state. Some highly regulated industries require licenses at the federal level, such as investment advice firms, inter-state trucking companies, meat processing companies, and firearm sales. You'll also need a seller's permit if you are reselling goods; this allows you to purchase goods at wholesale, without paying sales tax, and then you'll need to collect the tax from your customer.

Will you need to purchase a vehicle?
Transportation may be necessary if you will provide services at your client's home, or if your business involves delivery of goods. Do you need a delivery van or work truck? Do you need a nicer personal car to make a better impression when you make house calls? Be careful about overdoing it at the start of your business; you can always increase the size of your fleet or upgrade when your business generates the income to support it. The need for a vehicle always brings the additional related expenses of fuel, insurance, and maintenance. Don't overlook the option of renting if you only have an occasional need for an additional vehicle; it often makes more sense to rent in cases where you wouldn't use it enough to make it worth buying.

Your business won't be successful if nobody knows about it.
Business cards are a must; they're not expensive and it helps your business image as a professional. Also, your cards may eventually make their way into the hands of your next client or customer and bring you business. Other types of marketing and advertising can be a major expense, but it can also be done at a fairly reasonable cost. There are many ways to promote your business; you don't have to resort to pricey ads and commercials if you don't want to. I know a landscaper whose only marketing expense is a one inch yellow page ad; that one listing brings in plenty of work for his two-man show. I also know a residential painter who gets all the work he needs through a reasonably priced on-line referral service. Networking, word of mouth, and promotional fairs may be appropriate for certain types of businesses. If you do choose to run ads, keep in mind that it's much more cost effective to target a specific group that is likely to need your product or service, rather than ads to the general population.

If you will be selling something, you will have the cost of supplies for production or an inventory to maintain.
In addition to the cost of the goods themselves, don't forget about the cost for the space needed to store your inventory, the shipping or delivery charges for those items, and the insurance to protect them in the case of loss due to theft or disaster. If you will be providing a service, you'll need the necessary supplies, equipment, or tools to perform your service. You may already own much of what you need if you are simply extending your current profession into your own business, but it is likely you'll want to update or upgrade once your business is up and running.

Payroll and other employee-related expenses should be a major consideration if you plan to hire employees.
In addition to their wages, you will have to pay half of their social security tax, as well as pay for any benefits you plan to provide, such as health insurance, paid vacations, or paid sick leave. Will you provide employees with meals, transportation, uniforms, or child care assistance? You should also be aware that you must get a federal and state Employer ID number (EIN) if you plan to incorporate, become a limited liability company (LLC), form a partnership, or hire any employees.

Also consider the clothing you'll need when you run your business.
A self employed person working from home may be able to get away with working in their pajamas if they will not be dealing with customers in their home, but most other types of businesses will require you to be fully dressed when working. What is the normal professional attire for your industry? You may be your own boss, but your customers or clients will still judge the capability of you and your business by the image you present. Will you be wearing a uniform, such as a chef's coat or a mechanic's suit? You will look sharp wearing a suit if you run a store, restaurant, or provide consultation services. But blue jeans and a tee or polo shirt can be completely appropriate if your business requires you to get a little dirty.

The last thing you want to overlook is your expected salary.
Do you have a realistic expectation of the income from your self employment? How much do you need to make to be happy with starting your business? Do you want to make more than you did as some one's employee? How much more? Or are you okay with making about the same money, if you can have the freedom and flexibility of self employment? Also, depending on the type of business you choose, you may have to go sometime before you receive much income. Many businesses don't immediately see a profit, especially those with a high start-up cost. Do you have enough saved to get you by until your business begins to generate income?

The bottom line is, make sure you are aware of any expenses that will affect your business' bottom line. Knowing how much you'll need to start and run your business will help you prepare, and will keep you from experiencing the sticker shock that may come with it. Write up a list of all your business needs, and get quotes, bids, or prices for those expenses before you move forward with starting your business. You'll start your business smart once you are armed with solid numbers in black and white, and you can go ahead confidently when you know you have access to the necessary start up capital.

Sources: business information
Starting the Right Business For You
Is Self Employment Right For You?


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Friday, 19 July 2024

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