Starting your own business is both exciting and scary. But the more you prepare, the higher your likelihood of success will be. There’s a lot to consider when you go out on your own, from determining the services you’ll offer to how you’ll incorporate your business, where you’ll work, and how you’ll find clients.
Below, we outline eight important business startup costs to be aware of. If you’re thinking of going independent, considering how you will tackle each of these points can be a valuable exercise to wrap your head around exactly what it will take to get your business up and running.
As a business owner, the legal and financial wellbeing of your company are your responsibility. If legal or financial problems come up that impact your business, that means they will impact you directly as well. That’s why it is so important to protect your company against the risk of liability losses. Most clients require you to have certain insurances anyways, but being on top of insurance from the start will help put you at ease and give your company a secure backing.
The types of insurance you need will depend on your industry, company size, and clients. Common insurances include: general liability, errors and omissions, and home-based business insurance.
2. Licenses and Permits
When you start your business, you must obtain the right permits and licenses. Much like insurance, these will depend on your industry and where your business is located. State licensing and permits will vary depending on where your business is located, and if your company is involved in any activity that is supervised or regulated by a federal agency you may need federal licenses as well. The cost of licensing and permitting varies, so it is worth checking out what you are in for ahead of time.
3. Office Space
One of the biggest perks of working for yourself is that you get to choose where your work gets done. There are many options to consider based on how you work and your individual budget. For some, a home office might be ideal if you have a dedicated space and are confident you can manage your time and be productive. While a home office might be your first inclination, it is important to keep in mind that it isn’t a completely free option. You’ll likely need to invest a bit into office equipment and supplies to create a functional workspace.
Other options include coworking spaces, renting a private office building, renting hourly spaces, or working from public spaces. Each of these options come with different costs, so if you’re not sure where to start, make a list of pros and cons for each one and to see what will work best for your individual needs.
4. Equipment and Supplies
Once you decide where you’ll be working from, consider the cost of any additional equipment and supplies you’ll need. Do you need a new laptop, an extra monitor, a filing cabinet, a printer, or a comfortable chair for your home office? Consider non-physical needs as well such as a professional website. Do you feel capable of creating your own website, or is that something you’d rather pay a professional to do for you? Think about the areas of your business where it is worth it to spend money upfront and where you can hold off and save until later down the road.
5. Advertising and Marketing
Marketing and advertising are one area where you can save big initially. If much of your marketing can be done online through your website and social media accounts, you shouldn’t have to invest much up front. However, it is worth laying out a plan for how you want to market your services. While social media sites may be free to use, marketing efforts will take a considerable amount of your time, and time is money! With a plan in place, you can feel more confident that the effort and time you put in will be worthwhile.
6. Time tracking, Invoicing, and Collections
Time tracking, invoicing, and collections can be easily overlooked when you are first starting out. But, having a process to accurately and ethically tack and bill time is a very important part of your job. Clients will want to know when and how you are spending your billable hours, and you will also need a plan of action to bill your clients. Having a clear process for invoicing clients will help ensure billing and payment collection runs more smoothly. Options here include mobile apps to track your time, do-it-yourself account management software, using an accountant or bookkeeping service, or working with a business management service to assist with customized invoices and online payment records.
How you pay your taxes is one of the biggest changes you’ll make working as an independent contractor. The majority of independent contractors are considered to be self-employed and are subject to paying self-employment tax in addition to income tax. However, this can vary depending on how your business is structured. It is highly advisable to consult an accountant to ensure you don’t’ overlook small details, and accurately manage your records, paperwork, and payments.
Contracts will quickly become another very important part of your job. Contracts provide legal protection and a written record of what you and your client agree to. Online resources are available to help you create and edit your own contracts, or you can work with an attorney to help create or review standard contracts and forms.
If you haven’t gathered it by now, there are a lot of back-office tasks associated with running your own business. While that’s not always the most fun part about going out on your own, it is an essential part to remaining compliant and growing a successful company. MBO’s Advantage program can help provide much needed business management support like assistance in choosing the right business structure, expert contract review and tools to track expenses, invoicing, and collections so you can have the time to focus on the work that matters most to you.
Check out what Advantage members are saying about their experience, or book a customized consultation today.
The information provided in the MBO Blog does not constitute legal, tax or financial advice. It does not take into account your particular circumstances, objectives, legal and financial situation or needs. Before acting on any information in the MBO Blog you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing.