Planning for your first year's expenses
At the start of your business venture, you will experience a mix of nervous jitters and happy butterflies. You will be excited about this business, and the prospects of making money. But before you open shop and start selling, spend some time planning the typical expenses in your company's first year. You need to know how to take care of your new baby financially.
While the first thing that comes to your mind is how your office should have that swanky exterior, there is more to starting a business than cool furniture or sophisticated office space. Your first-year company is still morphing, so you want to be careful with costs. This period calls for meticulous accounting. Quite a few businesses overlook this aspect, relying instead on regular customers to keep their operation afloat.
You will incur quite many start-up costs right at the very beginning. The amount will vary depending on the size and value of the business. Though brick and mortar businesses are different from online-based enterprises, there are a few typical expenses common to both types, including:
- Advertising and marketing
- Loans and mortgages
- Salaries/employee expenses
- Equipment and supplies
- Product research
- Licensing, insurance, and permit fees
Company Setup and Incorporation
Your company needs to be incorporated under any of the several legal entities available under the law. Consult a business lawyer who has experience in company formation so he can guide you form the right type of company. As an investor or a businessperson, you can establish your new enterprise under the following legal entities:
- Ltd. (Limited) company- formed by a group of stockholders (minimum 3 of them)
- Partnership – managed by a minimum of two persons;
- JV (Joint venture) – established by a group of legal entities.
If you’d like to incorporate your business, you will have to set aside the stipulated amount of capital, find an office, and hire employees.
Office Space and operating requirements
Next, you have to find an office or business premises for your company. This where you will workfrom or offer your services, and it will cost you money. Some property owners will ask for goodwill as well as a deposit and up to three months of rent upfront.
While there are many options, it’s good to find and occupy a space where that was used previously as business promises for two reasons. First, it will be easier to obtain documentation, and secondly, it can give you a strategic advantage as customers already know that location.
Also, look at factors like mortgage, building lease, and possibilities of a home business location before you finalize the deal.
Recruitment and Salaries
To run a business, you will need to hire personnel. Again, this will cost money in terms of salaries, remunerations, benefits, allowances, and commissions. You will need to set up a payroll system, which also takes care of deductions, such asincome taxes and employee benefits. Xero, Intuit Payroll, Sage HRMS, and OnPay software can help with this.
Accounting, Legal and Taxes
Lastly, you will have to hire bookkeepers to help with financial records such as P&L statements and ledgers, as well as filing tax returns. You will also need a lawyer to help with legal representation and litigation. Since you are a legal entity, you have a responsibility to pay taxes to the state. It could be between 20-30% of your income.