8 Startup Costs that Can Blindside a New Company

Some new businesses begin as a transition from a hobby to full-time pursuit. Others are created from scratch, with only a basic idea in mind. Either way, startup costs can quickly accumulate. Setting a business plan and creating a budget to assess organizational expenses prior to opening day can eliminate some of the sticker shock related to launching a business. Here are eight startup expenses that are sometimes overlooked by entrepreneurs.

Licenses and Permits

Before setting up shop, make sure to obtain any required licenses and permits. Rather than dealing with improper licensing issues on the back end, research local requirements and file all necessary paperwork. Also, don't forget to apply for a tax identification number, if needed.

Legal Expenses

Working with an attorney is always a good idea when setting up a new business. Small companies have several options for organization — LLC, Corporation, or partnerships — and an attorney will advise clients on the relative benefits of each individual structure. An attorney can also draw up operating agreements and articles of incorporation, which are often the first documents requested by banks and investors.

Technology

An initial investment in technology is another startup cost often incurred prior to purchasing. Budget for hardware, software, and any mobile devices needed for remote access. Data security and storage procedures must also be put into place to protect company information.

Insurance

Insurance is another expense generally included among startup costs. Address potential liabilities and make sure adequate coverage is obtained. Work with an insurance agency to create appropriate policies, such as an umbrella, professional liability, or even property insurance to limit loss exposure and protect any investment in a new business.

Membership Fees in Trade Organizations, Accreditation

One of the best ways for a new company to network within an industry is through memberships in professional associations. Plan to attend conferences and trade shows during the startup period and on an ongoing basis. Professional accreditation may also be necessary and will instill a sense of confidence in potential customers and business partners.

Office Setup

Chances are, even home-based businesses need to purchase some amount of office furniture and equipment to accommodate a new business venture. To maintain a professional atmosphere, establish a reliable internet connection and a separate business phone number, even at home. Also, determine the proper business address and lease a P.O. Box, if required.

Marketing Expenses

To help spread the word about a new company, marketing expenditures should be added to a startup budget. Website hosting and design services should be included so anyone searching the Internet can easily find information about the new company. Logo design and branding costs are another component of marketing expenses. Analyze the relative costs and benefits of items like business cards, introductory mail marketing campaigns, and give away items such as pens or magnets, which all work to increase brand awareness.

Ongoing Expenses

Ongoing business expenses like rent, utilities, and payroll must be paid during the startup period, even when a business has not officially opened its doors. These expenses are not onetime setup costs, but still will be incurred during the startup period.

To ensure proper tax and financial reporting, startup costs should be tracked and accounted for up to the official opening of a new business. Setting up a bookkeeping system early in the process is also important. An online accounting system captures expenses and allows management to create customized reports and classify startup expenses to track cash expenses in the startup phase of a new company.