How many expenses are there when starting a local business? While every business is different, here is a list of twelve common expenses that apply to most small businesses, including retail, restaurants, and local services.
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The following list is not a complete list of all expenses your business will have; since every small business is different, there will also be other specific expenses that won't be included in this list.
Expense #1: Business Formation
Starting a business requires that you choose a business structure. In the United States, there are four main business structures:
Sole Proprietorship
General Partnership
Limited Liability Company (LLC)
Corporation (S-Corp or C-Corp)
Depending on the business structure, certain paperwork must be filed with your state government, including paying a state filing fee.
Generally, sole proprietorships and general partnerships don't need to file special forms or pay a fee with the exemption of filing a DBA (doing business as), also known as a fictitious business name, if required by your county or state.
In contrast, forming an LLC or a corporation has initial setup and recurring costs. State governments will require certain paperwork to be filed when forming an LLC or corporation, including paying a filing fee which varies by state.
Many business owners who form a Limited Liability Company or corporation use a professional online filing service to make the process easier. Online filing services such as ZenBusiness handle the paperwork for forming an LLC or corporation.
Learn more about ZenBusiness and pricing for forming an LLC or corporation
Expense #2: Business Location
Many businesses need a commercial office or building, while others can operate from home. If your business needs to lease or buy a commercial space, use these popular sites to know how much it costs and find available commercial properties in your area:
Business Space for Home-Based Businesses
A huge savings of running a business from home is not spending on leasing or buying commercial property. However, you might want a professional business setting to meet clients, conduct business meetings, interview potential candidates, or occasionally do business work away from your home office.
Companies like Davinci let you rent a professional business office or room in many cities worldwide for a few hours or a day without a long-term lease or an expensive purchase. This is an excellent and affordable option for home-based business owners who need a secondary business space for doing business.
Learn more about the cost of renting business space with Davinci
Expense #3: Business Licenses and Permits
Another important legal expense is getting business licenses and permits. Almost every small business will need one or multiple business licenses and permits, including sole proprietorships, general partnerships, LLCs, corporations, and home-based businesses.
The cost of licenses and permits widely varies depending on your business and where your business is located. Most licenses and permits will also need to be renewed, and you'll have to pay a renewal fee.
You'll need to research which licenses and permits your business will need at each level of government, including local, state, and, less commonly, federal.
An easier way to find out which licenses and permits your business will need is to use an online service such as Swyft Filings, which does the research for you.
Learn more about the cost of using Swyft Filings
Expense #4: Business Insurance
Accidents, lawsuits, theft, and other misfortunes can happen to any small business. Your business will need insurance coverage to protect it from financial burdens and losses.
Common insurance coverages for small businesses include:
General Liability
Worker's Compensation
Professional Liability
Commercial Auto Insurance
Commercial Property Insurance
Your business may need one or several insurance policies, and the cost varies widely depending on your business.
Learn more about the types of insurance coverages your business may need on these popular business insurance sites:
Expense #5: Payroll Software System
Does your business have one or more employees? If it does, you will need a way to calculate payroll taxes. Every business with employees is required by the IRS to withhold federal payroll taxes from its employees' pay, and many states will also require the same.
The easiest and most efficient way to calculate payroll taxes is using a payroll software system. Payroll software such as Gusto makes it simple to run payroll and keep your business legally compliant.
Learn more about Gusto's plans and pricing
Expense #6: Accounting Software System
There will be a lot of financial transactions you will need to track and categorize for tax purposes. Most small business owners use an accounting software system to track and sort the flow of revenue and expenses.
In addition, you'll need to have important financial reports and documents ready for tax time which can be quickly generated with an accounting software system.
Consider using Quickbooks, the most popular and preferred accounting software tool by many small business owners. Quickbooks has many useful features that make it easier to stay organized with your business accounting.
Learn more about Quickbooks Online plans and pricing
Expense #7: Point of Sale System
Every business needs a system to receive certain types of payments. A point of sale system, abbreviated as POS, is used to process transactions and accept payments.
A point-of-sale system includes:
Register
Cash Drawer
Receipt Printer
Card Terminal
Card Reader
Barcode Scanner
Depending on your business, you may need some or all point-of-sale devices.
Square is a popular POS system that can be used by any business, including retail, restaurants, and services.
Learn more about the cost of getting a POS system with Square
Expense #8: Logo Design
Your business will need a unique and memorable logo to include on your website, business cards, online business profiles, and more. The best way to get a logo is online. By getting a logo online, you can certainly find an option that is within your budget.
Learn more about the three ways you can get a logo online
Expense #9: Business Website
Many customers will expect your business to have a website. To get a website, you can create one yourself with a website builder or hire a web design service to create a complete website. In both cases, there are two important initial and recurring costs:
a domain name
a web hosting plan
If you hire a web design service, there are additional costs:
web design
website maintenance (optional)
Learn more about the best website builders and web design services you should use
Expense #10: Professional Business Email
Part of doing business is reading and sending emails. While you can use a free personal email address, many small business owners choose to get a professional business email address.
Using a professional business email gives a professional impression since it highlights your business brand. For example, your business email can look like this:
yourname@yourcompany.com
One of the largest business email providers is Google Workspace which offers multiple plans. You can get one business email address or several different ones for your employees and teams.
Learn more about Google Workspace plans and pricing
Expense #11: Online Advertising
Most people search online to find local businesses, and to get noticed more quickly, you'll need to do online advertising.
By advertising online, you can promote your business on several popular online platforms that many customers use to find local businesses.
Online ads can be text, images, or videos and the cost of running ads depends on your budget. Online advertising platforms charge you when someone clicks on your ad or when someone sees your ad.
An additional expense with online advertising is creating an ad. You may need to hire a designer to create an image and video ad, or you can create them yourself using an online design tool.
Learn more about the best online advertising platforms for local businesses
Expense #12: Offline Advertising
Besides advertising on the internet, you will also need to do offline advertising. Promote your business with different types of printed marketing materials such as:
Flyers
Banners
Business Cards
Posters
Signs
Flags
In addition, you may need to hire a designer to design your custom signs, or you can do it yourself using an online design tool.
Learn how to attract more customers to your local business by promoting it online. Follow this step-by-step guide for beginners.