Before you start any business, you need to have a business plan in place—a formal document outlining what you’re going to do, how you’re going to develop, and most importantly, how you’re going to make money. Many new entrepreneurs get caught up in the
The Main Goals
Ultimately, you’ll want to pursue the following goals in your forecasts:
- Foreknowledge. Simply being aware of an expense is often enough to offset its power. Throughout your research, you’ll likely discover micro-costs you hadn’t initially considered.
- Accuracy. Accurately estimating costs isn’t easy, but the more accurate your projections are, the more likely your plan will work.
- Sustainability. You should also consider alternatives if and when you find an especially burdensome expense; is there a way to reduce this cost? Is there something else you could do instead?
With these three goals achieved, you can set proper prices for your products, set the stage for positive cash flow, and keep your business from suffering from unplanned expenses.
The Biggest Expenses to Plan For
These are some of the biggest expenses you should be planning for:
Office expenses
If you plan on having an office, you’ll need to plan for the significant expenses associated with it. According to Priceonomics, office rental prices vary significantly throughout the country, but will probably cost you at least several hundred dollars per employee, per month. Even a small office will likely set you back a few thousand dollars a month, plus the cost of utilities, and services to keep the place operational. If you want to cut back here, opt for a smaller office, or consider going fully remote and cutting your office expenses out of the equation altogether.
Equipment investments
Next, you’ll need to think about what equipment you’re going to buy and how you’re going to buy it. If you’re running a service-based enterprise, this will probably come down to things like computers and cell phones, but you may have to invest in manufacturing equipment if you’re doing your own production. According to Tetra Financial Group, “Since big equipment can deal such a major blow to your budget, it’s often better to lease; you’ll miss out on the benefits of ownership, but it’s a much more sustainable plan for your cash flow.”
Long-term contracts with vendors
If you’re partnering with suppliers and vendors, you’ll need to consider how much you’re paying to them on a regular basis. For example, you may have a company shipping you raw materials you can use in production, or you may have a partner responsible for warehousing and fulfillment. These long-term contracts and pricing will affect your business month after month, possibly for years. It’s important to understand how much they’re going to cost you, and try to negotiate for better deals.
Employee compensation
You can’t have a successful business without a team of talented and hardworking employees to help run it. Unfortunately, those employees are going to represent some of the biggest costs in your business. You’ll have to pay them competitive salaries (which, at high-talent levels, can be significant), and oftentimes, benefit packages that include health insurance and retirement options. You can try to minimize costs here by cutting compensation, but the jobs are going to be less appealing to potential workers; it’s a delicate balance to strike.
Taxes
Finally, you’ll need to prepare for taxes. Your business will need to pay estimated taxes on any profits you generate, and plan for specific credits, deductions, and penalties. Business taxes can be a mess, especially for big or complex organizations, so it may be in your best interest to work with a professional so you can plan for these costs accurately.
Other Expenses to Consider
Of course, these aren’t the only expenses you’ll have to worry about. These are just some of the others you should consider including (though they won’t be as impactful as the ones in the preceding list):
Insurance
Think about general liability insurance, and insurance to protect your assets. According to Ryan Hanley of Trusted Choice, even home businesses will need these types of insurance: “If you run an Etsy store out of your garage and you keep all of your products and supplies out there. Say your house burns down and all of that is gone, your homeowners’ policy isn’t going to cover that.”
Legal fees
Depending on what type of business you own, what products you’re making, and what kinds of customers you’ll be dealing with, you may need to consult an attorney on various issues—think copyright laws, licensing, and important terms and conditions.
Marketing and advertising
If you want to generate interest in your brand, your products, and your services, you’ll need to build buzz through marketing and advertising—and that can cost significant money. Depending on the strategies you use, you could spend anywhere from a few hundred to tens of thousands of dollars a month
No matter how careful or thorough you are in your expense planning, there will always be expenses to come up that you didn’t estimate or consider. That’s an acceptable part of managing a business; there will always be unexpected elements disrupting your plans. As long as you don’t neglect the biggest and most important expenses, you should be able to maintain your profitability with no issue.
