One of the most common questions I get is about funding. In the entrepreneurial journey, funding for tangible assets is a well-known necessity, but what about the less obvious intangible expenses? Many first-time business owners are surprised when they discover the myriad of other costs that come with starting a business. To shed light on these frequently unnoticed expenses, I have compiled a list of potential financial burdens entrepreneurs might need to shoulder, extending beyond the usual suspects.
While the specific expenses can vary based on your industry and unique circumstances, this list serves as a starting point to prompt you to consider a broader spectrum of financial commitments that accompany the creation of a new business. It’s important to note that not all the expenses outlined will apply to every business. Still, by categorizing startup costs into nine distinct categories, we aim to provide a structured approach to your financial planning. Additionally, we’ve included potential expenditure ranges for some expenses to facilitate more accurate budgeting, allowing you to navigate your entrepreneurial journey with greater financial clarity.
Licenses & Permits
Here are some common licenses and permits that a business may need to obtain:
Business license – This is a general license many cities and counties require to legally operate a business. Requirements and fees vary by location.
Sales tax permit – A business must collect and remit sales tax to the state and local governments if selling taxable goods. A sales tax permit is required.
Food service permit – For businesses serving food, the health department usually requires a permit to ensure proper food safety and sanitation practices are followed.
Liquor license – To sell or serve alcoholic beverages, a liquor license specific to the business type and location is needed. Liquor licenses are regulated at the state and local levels.
Building permits – Construction, renovations, or changes to a building may require various building permits from the city or county. Things like electrical, plumbing, and fire systems require permits.
Health department permit – Personal services like salons, spas, and clinics usually require a permit from the health department.
Professional licenses – Licenses are required for many professions, such as medical practice, legal practice, accountancy, architecture, and more.
Facilities license – Licenses are needed for many facilities like restaurants, daycare, fitness centers, and more.
Environmental permits – Businesses producing hazardous waste or emissions may need permits from environmental agencies.
Sign permit – To install business signage, the city/county often requires a permit. There are usually rules on size, placement, lighting, etc.
Here are some common legal-related expenses that a business may incur when starting up:
Business formation fees – Costs to establish the legal business structure, such as filing formation documents for an LLC or corporation. Typical range is $50 to $800.
Drafting contracts and agreements – Paying an attorney to review or draft important contracts like leases, vendor/supplier agreements, terms & conditions, etc. Typical range is $1,000 to $5,000.
Consulting on compliance – An attorney can provide guidance on ensuring compliance with various regulations like employment law, taxes, licenses, etc. Hourly fees apply ($150-$500).
Intellectual property registration – Registering trademarks ($250-$350), copyrights ($35-$95), patents ($5,000-$15,000) and other IPs ($5,000-$10,000).
Permit and licensing applications – Some permit and licensing applications require legal review before submission. Expect hourly attorney fees ($150-$500).
Employee policies – Developing an employee handbook, policies, and procedures around HR issues. It can cost over $1,000.
Stock issuance – If issuing stock/equity, legal counsel is needed to develop a stock purchase agreement (average $1,360), a buy-sell agreement ($1,000-$4,500), and bylaws (average $1,237).
Contract and document review – Before signing any major business contract, it is often wise to have a lawyer review it first. Hourly rates apply ($150-$500).
Insurance (initial)
Here are some common insurance-related expenses a business may incur when starting up:
General liability insurance: This insurance covers bodily injury, property damage, and personal injury claims arising from your business operations. It’s often considered essential for all businesses. Typical Range of $500 to $2,000 per year.
Property insurance: Property insurance protects your business assets, including your building, equipment, inventory, and furnishings, from damage or loss due to events like fire, theft, or natural disasters.
Commercial umbrella insurance: It provides additional liability coverage beyond the limits of your primary liability policies, offering extra protection in case of major lawsuits or claims.
Key person insurance: If a key employee or the owner’s sudden death or disability would significantly impact your business, key person insurance can help compensate for the loss.
Tenant’s insurance: If you lease commercial space, tenant’s insurance may be required by your landlord to cover damages you may cause to the rented property.
Here are some common website development and setup costs a business may incur before launching:
Domain registration – Buying the domain name for the business website, typically $12 to $15 per year.
Website design – Hiring a web designer to code and build the site. Depending on its complexity, average costs range from $300+ if the project is offshored, to over $5,000+ for local designers.
Premium themes – Themes allow users to customize websites. Most hosting companies provide some free basic themes. However, premium WordPress themes can cost anywhere from $20 to $200 or more.
Initial website content – If hiring a copywriter to write all the website content, allow about $1,000 to $5,000.
Website hosting – The ongoing cost of hosting and site management by a hosting provider averages between $2 and $200 per month.
SSL certificate – For HTTPS secure site access, usually $10 to $200 per year.
Analytics – Google Analytics, Google Console, Mixpanel, etc., for tracking web traffic. Free or paid plans are available but may require outside help to set up properly.
Stock photos – Buying professional stock images for the website. Expect to pay between $25 and $250+ per high-resolution photo. (Some free sites include Pixabay, Pixels, and Unsplash).
Icons & graphics – Custom illustrations or icon packs to use as visual assets. $200+ one-time fee.
CMS plugins – Self-hosted CMSs like WordPress require plugins for added features, security, performance, etc. There are many good free plugins, but paid ones often start at $39 for a single site license.
Marketing & Advertising (initial)
Here are some of the most common marketing expenses that businesses need to budget for during their startup phase:
Branding – Logo design, branding guidelines, business cards, and stationery represent the company right from the start. Allow around $500+ for initial brand assets.
Print materials – Brochures, flyers, signage, and presentation materials for meetings and trade shows. Budget $500 to $1,000.
Video production – Creating engaging brand videos, testimonials, or product explainers. Professional production can range from $1,000 to $5,000 per finished minute.
Market research – Conducting surveys, customer interviews, or focus groups to gather insights. If not done in-house, budget at least $2,000 to $5,000 for market research.
Location & Rent (Initial)
Here are some common location and rental costs a business may incur when first leasing commercial space:
Security deposit – Typically, a refundable security deposit is required for 1 to 3 months of rent. Security deposits cover damage or breach of lease.
First month’s rent – The first month’s rent payment is usually due at lease signing.
Tenant improvements – The build-out cost to renovate the space for the business’s use. From $10 to $50 per sq ft or more.
Rent abatement – Period of free rent provided as a lease incentive (1 to a few months typically).
Commissions – Real estate broker fees equal 3 to 6% of total lease value. While paid for by the landlord, it can affect rent.
Property taxes – Part of CAM (common area maintenance), costs passed to tenants range from $1 to $5 per sq ft annually.
Insurance – Landlord may require being added to the business’s liability insurance.
Utilities – If not included in rent, need to budget new service set up for electricity, gas, water, phone/internet.
Permits – Any city permit fees for fire systems, safety, construction, signage, etc. (covered in the License and Permit category).
Legal fees – Hiring lawyers to review lease terms and negotiate favorable agreements (covered in Legal Fees category).
Furniture & equipment – Outfitting the space with furniture, computers, equipment, etc.
Moving costs – Hiring moving companies for the move-in process.
Inventory
Here are some common inventory and warehousing expenses that businesses need to consider when launching:
Inventory software – For inventory management, order tracking, valuations, etc., $50 to $500 per month is typical.
Industrial racking and storage – To store and organize inventory and materials. $1,000 to over $10,000 one-time cost.
Forklifts/pallet jacks – Equipment to move inventory around safely. Can buy or rent. $5,000+ or $200+ monthly.
Packaging materials – Boxes, bubble wrap, labels, tapes, and scales to pack orders. Ongoing costs.
Warehouse space – If not storing onsite, you need a budget for offsite warehouse rental. The average monthly rent is $1 per sq ft.
Inventory loss – Plan for some % of inventory being damaged, expiring, or shrinking over time.
Insurance – Commercial policies to cover business inventory from damage, theft, etc.
Delivery fees – Costs to deliver customer orders locally or long distance via couriers.
Customs & duties – When importing inventory from overseas. Varies by country.
Gas/mileage – If own delivery vehicles, fuel costs for transporting goods.
Initial Employee Salaries (if applicable)
Here are some common initial employee-related expenses a business may need to pay before opening its doors:
Job advertising – Costs associated with publishing openings on job boards or websites to recruit candidates. This can range from $100 to $500 per ad.
Background checks – Many employers run criminal background checks on candidates. Typically, $30 to $50 per check.
Drug screening – Some companies require drug testing for employees. Plan approximately $10 to $80 per test.
HR software – For applicant tracking, onboarding, and managing employee records. Depending on features, subscription-based software costs about $3+ per user per month or $500+ for a perpetual license.
Employment/HR lawyer – Hiring an employment lawyer to review employee policies, handbooks, offer letters, contracts, etc. It can be $200 to $500 per hour.
Training – Orientation and onboarding training time/materials for new hires.
Here are some common accounting and financial setup costs a new business may incur before opening:
Accounting software – QuickBooks, Xero, FreshBooks, etc. Typically, $10 to $50 per month.
Accounting software set up – Setting up your chart of accounts, connecting your software to your bank, and developing reports will take several hours; expect to pay $200 to $500+.
Payroll software/service – Software to manage payroll processing, taxes, withholdings, etc. Gusto, ADP, Paychex, etc., to handle payroll. There are payroll software products you can buy to do payroll in-house. There are some free options, such as Payroll4Free, or you can outsource payroll to a payroll service, such as ADP for $79 per month plus $4 per employee per month.
Tax consulting – Hiring a CPA to advise on taxes and manage filings. $150 to $300 per hour.
Business bank account(s) – Opening business checking/savings accounts. Some fees may apply.
POS equipment – Purchasing point-of-sale systems, cash registers, and hardware. $500 to $5,000+ (POS terminals – Upfront cost of $300 to $2,000 per terminal. Receipt printers – $200 to $400 one-time cost.)
Each of these categories plays a significant role in the financial success of your new business. By recognizing and accounting for these often-hidden expenses, you’ll be better equipped to plan, budget, and navigate your startup costs to ensure a strong and sustainable business foundation.
