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Understanding the Costs of Starting a Business

The prospect of getting your own venture off the ground is exciting and liberating. It is the beginning of financial independence and the end of having to answer to a boss. However, there are some not-so-glamorous aspects of business ownership you must face up to before you can reap its rewards.

Firstly, you need to incorporate your business so that it is recognized as a legally existing entity. You’ll also need to secure all the permits and licenses required in your line of business and local authorities.

You then need to think about where you will be running your business and how many hired hands you require. All of these items require money and barely scratch the surface of the expenses you will need to foot before you can throw open your doors to the public.

Licenses and Permits

Depending on the kind of business you're in, you may be required to prove your competence to operate in it or comply with the industry's requirements by obtaining a license.

For instance, if you're opening a restaurant, you need to secure a food handler's permit and an employee health permit. You will also need to obtain a food service license from your city's health department. The latter will cost you between $100 and $1,000, depending on your operation's size. The required licenses are vastly different industry-to-industry and by locality.

Staff and Payroll

Typically, staff costs account for 25 to 50 percent of your entire budget. Besides their net pay, you will have to contribute to their pension and their workers' compensation insurance. Sales staff will likely need to earn commissions in addition to their monthly retainer. Back-office staff might need to be paid overtime if they were required to work beyond regular office hours.

Payroll taxes need to be filed in addition to those other statutory deductions. This is one of the areas business owners find particularly tricky to handle. To ensure you stay in the IRS’s good books, you may want to hire an outsourced CPA specializing in startups. Such help will be especially welcome if you have no accounting background and don’t wish to add IRS penalties to your expenses.


You will need to set aside a good chunk of your startup cash for your initial inventory. If you’re opening a family diner, you will need a supply of meats, vegetables, and drinks to cater to any request from your menu.

Ideally, as you build a loyal customer base, you will want to freshen up your menu every now and then as you increase the available options. This will call for higher expenditure on materials. The same goes for other consumer goods businesses and even service providers.


There are many areas in which insurance comes into play when running a business. There is always an element of risk to be mitigated. If you're in the restaurant business, you will want to mitigate the risk of fire engulfing your premises. You will want to insure any vehicles you use to collect supplies or make deliveries to customers.

You may also be required by state law to provide workers’ compensation coverage to your staff. The average small business spends more than $1,200 annually on premiums.


To secure your business premises, you need to make a down payment and make a commitment of at least a month’s rent in advance. Besides the rent, you’ll be required to pay for utilities, including electricity, gas, water, and internet connectivity. If you need to redesign the office before moving in, create new partitions, strip off wallpaper, etc., your landlord will not foot any of the costs involved.

You will likely have to purchase furniture for the new office. You may also need to purchase computers, printers, scanners, shredders, and phone extensions to ease in-office communications.


Getting the word out about your business and the products or services you offer is crucial when you’re just starting. Since the market is virtually unaware of your existence, you have to invest in ads, both on social media and offline, to tell the world what you offer. Eager as you may be to declare your presence on all platforms, experts recommend keeping your marketing expenditure below 10 percent of your budget.

Keeping a Leash on Costs

Controlling your startup costs should be at the top of your agenda as you start your business. You probably won't be at your maximum client potential at this point in your business' life. You, therefore, won't be anywhere near your revenue goals. 

To increase your chances of breaking even as early as possible, keep your purchases to the bare essentials.

Syandita Malakar
Syandita Malakar
Hi guys this is Syandita. I started Business Module Hub to help you all to post updated articles on technologies, gadgets. Although I love to write about travel, food, fashion and so on. I quite love reading the articles of Business Module Hub it always update me about the new technologies and the inventions. Hope you will find Business Module Hub interesting in various way and help you accordingly. Keep blogging and stay connected....!
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