Starting a business can be an exciting venture with a mountain of potential for personal and financial growth. However, it can also be a venture filled with unforeseen pitfalls and traps. Most of these pitfalls can be found in the financial or budgeting portion of your business.
Creating an accurate budget is a daunting and almost impossible task for many rookie entrepreneurs. Rule of thumb is to calculate a first-year budget that is as accurate as possible then add 20% to that amount. This will free up money for unexpected expenses, such as the many hidden costs associated with starting a business. These hidden costs include professional fees, licensing fees, surety bonds, utilities and technology costs. Taking these expenses into account can possibly save you from a major business disaster.
Unexpected Licensing Fees
Licensing fees can be subject to change depending on government policies or industry regulations. Additionally, the cost of a business license could vary depending on the number of jurisdictions you conduct business in and the physical location of your business. For example, if you’re starting mortgage company, then your licensing fees can vary depending on what county, city or state where you plan to do business.
If you want to operate nationwide or online, then you must purchase a business license that allows you to issue mortgages in every state. Ultimately, this means that licensing fees could increase a significant amount based on where business is conducted, which is something that most entrepreneurs aren’t privy to before applying for a business license. It’s also something to think about if you plan to do business in multiple areas.
Paying Professionals for Help
Seasoned professionals can help make a business a rousing success. In fact, hiring the right professionals from the start is a must if you really want to succeed. For example, hiring an accountant to manage finances and prepare taxes or hiring an attorney with experience in your industry to help with the legal side of things. Fees for professionals can add up, but in the long run, this help will save money, time and a lot of confusion.
Surety bond regulations prevent unqualified professionals from accessing certain markets. This effectively reduces the occurrence of unethical or unfair business practices. The use of surety bonds is required in many different industries, and especially in industries where services are offered to customers. However, the necessity of surety bonds isn’t widely spread knowledge.
It’s possible that you won’t realize you need a surety bond until the licensing process is almost over. This is unfortunate because bonds come with fees that you didn’t see coming and thus didn’t budget for. Bond premiums range from $100 to $20,000.
The actual quote will depend on your credit score and how much bond coverage is needed. Fortunately, bond providers often offer to finance to anyone who can’t afford to pay their premium. You can also turn to a direct lender if you can’t find assistance from a bond provider.
Budget for Utilities
It may not seem like it, but utilities can take up a large portion of your business’s budget. This is especially true if you’re opening a business in a large facility. Large facilities require more heating and cooling, lighting and more. Additionally, you’ll have to budget for inclement weather, especially if your facility is in an extreme weather zone. So, budgeting for utility costs before your business opens is a must.
Technology Costs a Lot
Upfront fees for computer, phone, alarm and other technological systems are generally a part of starting a business. These fees can be significant, especially since you’ll also require Internet Technology(IT), software management, cloud technology, customs data entry software, scalable communication technology and more. It may seem like too much, but all of this can help your business run more efficiently. However, if you don’t budget wisely, technology costs can catch your business off guard and soak up too much of your budget.
Budgeting can be difficult for any business, especially startups. However, as long as you budget wisely and take into account the hidden fees above, you should come out on top. Ignoring the potential for additional fees could be a dangerous move that simply helps you blend in with all of the other first-year business failures instead of standing out as a successful new business.