Sole Prop. Start-Up Costs

So you want to start a business. You want to be a sole proprietor — run your own show. Great! Good for you… and good luck.

There is more to going into business for yourself than just getting business cards printed, or sticking up a web page (the modern-day version of “hanging out your shingle”). “Unanticipated business expenses” can wreak havoc on both your business and personal life. Great expectations are great – realistic expectations are better. Here are a few of the “expected expenses” to carefully consider and budget for – before you start:

Business Equipment – No matter what business you decide to start, every self-employed entrepreneur will have some equipment needs. Will you need a new computer, or upgrades to your existing one? Are you prepared to pay for on-going repairs? Do you have a back-up plan when equipment is being repaired? This may include your cell phone or its charger, your computer monitor, your car, a copier and/or fax machine, the whosit on your whatsit — anything you use which is integral to your business can break down… including your own body and mind.
How will your business be handled if you are ill or hurt? What new stuff will you need?

Business Supplies – More than just paper and pens, there are a multitude of business essential items you will need to do business. Sales books, order pads, folders and files, notebooks, organizers and schedulers, are only a few of the possible items you will need.

Space – Whether you use your home, your car, your best friend’s garage, an office suite, or the neighborhood coffee shop, you need a business space. Will you need a space to manufacture, build, write, sell from, store, or meet with prospective clients? How much and what kind of suitable space will you need?
Will your business space meet the IRS requirements for a tax deduction? If you are planning to home office, have you considered the increased utility bills, such as increased electricity for computer, lights, etc.? Zoning laws and restrictions?

Marketing – This may include additional cell phone time, business cards, advertising in local print media, flyers and brochures – printing, paper, design, ink. Don’t let those hidden costs sneak up on you. For example, with an inkjet printer, the ink is often more expensive than the paper, especially if you print in color. What about web hosting and domain name? Flyer distribution? Ad designs?

Networking – Although networking is probably the least expensive marketing you can do, it is important to attend networking events for most types of business. Such events incur costs for memberships, meals, parking, travel, etc…

Wardrobe – Will you need a change in wardrobe to perform your work, or to maintain the needed image for your new business? Think about what image you want to project to your target market. If you’ve been wearing business casual at work, and suddenly you have to go buy a couple of business new suits, it can add up quickly, and unfortunately, it’s not normally tax-deductible.

Transportation – Will there be changes in your traveling needs? Gas costs have risen (like you haven’t noticed!), and if you’re traveling to visit prospects or to perform your services, be prepared to visit the gas-pump more often. Also, your vehicle may need to be able to carry your product or equipment, or… you may need to be able to take clients to lunch. Is your vehicle up to the tasks you’ll need to perform? You may need to clean out the trunk and the back seat, and have it washed, waxed and detailed frequently. Or, you may need a “new” vehicle entirely… such as a van or truck for some businesses.

Filing fees – Will you be filing a DBA (“doing business as”, also known as “fictitious business name” or “assumed name”)? The laws vary from state to state and country to country, but even if local laws don’t require it, your bank probably will – in order to accept checks made payable to the business name.
Don’t forget any regulatory fees that may apply and come due.

Banking – If you want to accept checks and credit card payments under your business name, your bank will likely require you to have a business account, rather than a personal account, even if you’re a sole proprietor. Find a bank that specializes in serving small business so your monthly fees stay reasonable.

Credit Cards - Will you be accepting payment by credit card? You will need to have the proper agreements and equipment in place. Merchant accounts generally have an initial cost for setup and equipment, plus monthly fees and minimums. Have you considered a business credit card? Certainly a convenience, providing you pay the bill in full when it comes due. Many suppliers and B2B companies prefer to have you pre-pay with a company card – so, it is almost an essential item in today’s business world.

Licensing/Certifications – Does your new business require city, county, state, national, or international licenses? Are your professional licenses and certifications up to date?

Continuing Education – Will you need it to keep yourself and your business competitive? Is ongoing certification needed or even required by law?

Insurance/Bonding – Does your business have any such legal or ethical requirements? Are there industry standards you need to abide by? What risks are you undertaking that you might be professionally liable for?

Professional Services – You may not think you need ongoing accounting, legal, or other help, but what about an initial consultation with a CPA to get your books set up properly? Or with an attorney to draft your basic contract? Or a business coach? “Sole proprietor” doesn’t have to mean you do everything yourself.

Taxes – Prepare to pay quarterly as cash starts to flow. Entrepreneurs have many deductible items, but they also have to pay all of their social security taxes. Remember, no one is withholding for you. An excellent practice is to set up a separate account for taxes and transfer money into there as it comes in.

Plan for these things when you’re calculating your initial cash flow requirements, and you’ll save your sanity, and maybe even your business, down the road.