Startup costs for a new business are an important consideration. One of the biggest hurdles you will cross when going independent is truly making sure you are ready for self-employment. If you want to start your own business and already know the skills and services you want to offer to clients, congratulations—a big part of your upfront work is already done! If you are confident in your skills and experience, the next step in the process is to prepare financially.
When considering what it will cost to get your business up and running, it is helpful to have a project you can start right away to generate cash flow. Or make sure you have a several months cushion of income to cover expenses until you bring in a contract.
And remember, even if you can start a project immediately, 60-day terms are common which means you might not get paid right away. As a skilled independent professional, your focus, network, and confidence in your abilities can certainly give you a leg up on the competition but be sure to keep these additional business startup costs in mind as well.
1. Permits and Licensing Costs
How you decide to structure your business carries different tax and compliance implications. There’s no right or wrong choice here. The best business structure for you will depend on different factors such as how you plan to take tax deductions, the industry you work in, and your future plans for growth. Incorporation costs also vary state-to-state. Depending on all these factors and whether you consult a lawyer (which can be very helpful to do), incorporation can range from a few hundred to a few thousand dollars.
You will also want to check out state licensing and permits, which will vary depending on where your business is located. 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.
2. Business Insurance
Once you own your business, the legal and financial well-being of your company are your responsibility. Any financial issues or legal problems that arise are going to impact you directly. That’s why insurance is so important. Most of the clients you work with will likely require you to have a certain level and type of insurance but maintaining minimum levels of common insurances such as general liability, errors and omissions, and home-based business insurance can be a good place to start. As with many startup costs, insurance costs will vary depending on your industry, location, company size, and clients.
3. Designing a Home Office or Renting Office Space
Where you work can have a big impact on your finances and if you’re looking for an area to save in, this might be it. As an independent, you have a lot of choice when it comes to where you work. If you can do so, working out of your home initially can be a low-cost option until you feel you need a larger or more professional office space. Coworking facilities also cost less than renting a private office and can give you the benefit of an office environment and conference rooms for meetings.
If you do decide to work from home, it is worth giving yourself a small budget to truly create an environment that you can get excited to work in. Make sure you have a comfortable chair, the technology you need to work efficiently, good lighting, etc.
4. Advertising and Marketing Expenses
Getting projects lined up is how you’re going to get your business off the ground, so investing in advertising and marketing your services is an important startup cost to consider. Initially, dedicate time to writing an attractive resume, building a professional website, creating appropriate social media profiles, and networking among your peers. Many of these steps require minimal financial cost but will require a lot of your time and energy.
5. Back Office Management Costs
One of the most overlooked parts of starting your own business is managing your back office—all those administrative and support tasks that need to be done to keep your company running. Tasks such as managing records, filing paperwork, and billing clients are incredibly important, yet time consuming. While bigger companies have a team of employees who handle these jobs, as an independent contractor it is up to you to fulfill these roles.
For some, it may be helpful to hire an administrative assistant while others may be comfortable using do-it-yourself software. Another option is to work with a company like MBO who understands the needs of independents and can provide you with the help you need without breaking the bank. In fact, as an MBO Advantage member, you can get help with a lot of business startup costs and ongoing back-office tasks like assistance with setting up your business structure, paying taxes, billing clients, building a web presence and more.
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.