What Are The Costs For Starting A Business?

What Are The Costs For Starting A Business?
31 May 2018

Are you thinking of starting a business? If so, to start a business, you must first invest money. Different types of companies require various reserves or other forms of monetary expenditures. Whether you are buying machinery, stationery or office equipment, the expenses for these activities you usually make at the start-up phase must be financed in advance by you.

Start-Up Costs Vs. Investments

There are different types of costs when beginning a business. These include initial costs and investments. The initial costs are typically expenses that do not directly affect the company’s income, and these start-up costs are usually written off relatively quickly, often directly in the first financial year.

In contrast to these, investments are expenditures necessary for the start of the business, which should have a positive effect on the company in the longer term. Investments are usually made only after the formal legal foundation.

It is essential to estimate startup costs and investments accurately at the start of the business operations. Otherwise, you run the risk of depleting funds.

How To Reduce Start-Up Costs

There are many ways that you can use your budget more efficiently to start your business. You should consider the following low-cost alternatives to reduce investment and start-up costs:

  • Get a credit card: Credit cards create flexibility and allow you to pay over a period of months. Rather than taking out a considerable loan, you can purchase items of secondary importance over a period of months, e.g., office furniture and stationery. Doing it this way can effectively reduce your startup costs rather than spend all your savings at once. Many flexible credit card companies such as Bonsai Finance will be able to help you out with this.
  • Brokerage fees: Brokerage fees come with many services such as renting an office. No doubt, having the right location can be crucial. Nevertheless, you should try to negotiate the brokerage fees for your office location. If you do not want to pay brokerage fees, you can try to contact the landlords directly.
  • Business incubators & office communities: Use the existing infrastructure of a business incubator. This low-cost alternative to a private office offers a range of advantages include networking, short-term bookings, cancellations, good location and meeting rooms.
  • Purchase used goods: Office equipment, appliances, equipment, machines, and so on cost substantially less when you buy them second hand. It considerably reduces the amount of investment.
  • Leasing: Using meaningful forms of financing is a good money saving practice. With a lease, you can reduce investment in vehicles, machinery, and equipment significantly.

Administrative Costs

Administrative costs include attorney’s fees, business registration fees, advisory fees or patent filing fees. It also includes company registration fees. When starting a business, you must always register your company in the Commercial Register at the Chamber of Commerce of your country or state.

Additionally, depending on your state laws, a legal entity, including a private company or foundation, may need to be established through a notary. He or she will draw up a funding deed with you, after which the notary will arrange the Chamber of Commerce registration. The costs range from a few hundred dollars to over a thousand.

Office Costs

How high the cost for your office, depends on your situation. Can you get started directly from a spare room with your laptop? Or do you have to invest in renting or buying an office for practicing your profession?

The most advantageous option is, of course, to start at home. If you have such a space, it means you save on many costs. However, if you do not have space in your home, there are also many options for renting office space at a low price, such as renting desk space. Due to the continuing vacancy in the office market, you can often temporarily rent cheaply. You may be able to deduct the rent of a business building from the profit. And not only that: the costs for energy, insurance, cleaning, and furnishing are often deductible.

Office costs also include office furniture or telephone costs, property, equipment, materials or vehicles.

Consulting Costs

Especially in the first years, start-ups need help with company figures. At least, a tax accountant should check the numbers because they know best what a startup can do for tax purposes and whether the entrepreneur may have missed something.

Accountants are there to scan receipts, manage invoices and quickly view the VAT return. However, if you prefer to do it yourself, you can lower your costs and make your administration easier by using accounting and business apps. For the income tax, a bookkeeper or accountant is recommended. Ask fellow entrepreneurs for advice: what do they pay and what does the accountant do? You can also visit comparison sites to orientate yourself on the possibilities. An accountant is often more economical than an accountant.

In some cases, it is advisable to consult a lawyer. For example, if you operate an online shop, you need a billing-proof cancellation policy, return conditions, price information and much more. They must comply exactly with the legal regulations. Otherwise, you will be faced with threatening costly warnings, which have already ruined some founders.

Telephone Costs

Your monthly phone bill often increases considerably in the first months, as you will have a lot to arrange. Fortunately, you can fully deduct the costs for business phone calls from your profits.

Business Insurance

If you quit your job, you have less income security. You will not receive a benefit in case of occupational disability, and you will not accrue pension. You first have to immerse yourself in the possibilities to prevent loss of income during illness and retirement in a way that suits you and your budget. Also, other insurance policies are often necessary to include professional or company liability.

Marketing And Communication

Also, have a good marketing budget to put your company right on the map. Think of costs for your own website and a good photo. In your marketing plan, you map these costs better. Marketing costs are incurred for the design, for example of logo and business documents, for flyers, business cards or the creation of the homepage.

The good news is that, if you have a business plan, you can deduct all the above costs entirely from the profit when doing your accounts. Even if you also use your private telephone business, you can estimate which part of the expenses is business.

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Mazhar Iqbal

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