Starting a new business can be both exciting and terrifying. If successful, you face the possibility of leaving your day job and earning more money than you ever dreamed possible. At the same time, there are so many expenses to cover — all before making your first sale.
Even for seasoned veterans, navigating the business landscape is inherently risky. However, it’s possible to mitigate some of these risks if you prioritize your finances and spend wisely.
Let’s take a look.
Non-Essential Startup Costs
Don’t make the mistake of buying business cards or renting plush offices too early. For most startups, these are unnecessary expenses that do nothing more than eat into limited resources.
The same applies to many of the legal and administrative fees that some startups eagerly take on. In an ideal world, you’d be fully incorporated on day one, but it doesn’t make sense to go through the expensive hassle of officially setting up a business if you’re not making any money yet.
Instead, generate a few sales to determine if you’ve found a ready market. If early results are good, it’s time to make your startup more “official.”
Unavoidable Startup Costs
There are some startup expenses you can’t avoid, but the good news is you likely have some or all of the following:
- Computer — It’s difficult (if not impossible) to launch a business without a computer. Fortunately, there are some affordable PC and Mac options that offer the functionality you need. Expect to spend around $200 for a mid-range model.
- Internet connection — Your computer won’t be useful without a Wi-Fi connection. Most Internet subscriptions range between $25 and $80 a month.
- Domain and hosting — If you’re like most businesses, you’ll need a website to promote your products and services. Registering a new domain name costs around $15 a year. Hosting services range between $100 and $200 annually.
Manageable Startup Costs
Depending on your business, you may need equipment, machinery, and personnel. Some startups even buy full-fledged factories to produce items they intend to sell.
While all of these may be necessary for your business, it’s possible to keep your operations ultra-lean in the early days. This is, in large part, thanks to the new sharing economy:
- Why hire full-time employees when you can have access to the talent you need through freelance sites such as Upwork or Guru? You still pay for labor, but using short-term contractors means you can avoid paying full-time salaries and benefits. This is true whether you need web development, social media marketing, accounting, or more.
- The same principle applies to offices, furniture, pop-up shops, and countless other resources that businesses normally require. Instead of owning these things, it’s cheaper to rent them when needed. In fact, there is an entire cottage industry dedicated to this concept, with WeWork being one of the most popular examples.
- According to some estimates, the average cost for startup equipment can range from $10,000 to $125,000. But there are countless factories and 3-D printing operations around the globe that specialize in low-volume orders. Once you have the schematics for your prototype, these factories will manufacturer each of your customers’ orders on an “as needed” basis.
You may eventually need to invest in your own full-time team or remote factory, but you can finance these expansions with revenue from initial sales.
The Most Important Startup Cost of All
According to the U.S. Small Business Administration, the average startup cost for businesses is between $2,000 and $5,000. But by applying the principles outlined above, you can push your expenses toward the lower end of this range, even if you sell tailored leather handbags through your new e-commerce store.
However, there is one cost that many businesses — even established ones — overlook. If not managed properly, it can quickly become the most expensive cost of all.
First, some background.
Payment processing costs money, with most services charging a low, fixed monthly fee plus a percentage of every transaction (usually less than 3%). While this is an ongoing expense, it’s fairly manageable — you’re paying only in months you generate sales.
The danger comes from data breaches, credit card fraud, and identity theft. Not only can these result in hefty punitive fees and expensive litigation, but they also erode consumer confidence in your payment environment.
In fact, one data breach is all it takes to sink your business before it even gets off the ground.
This is why it pays to invest in a PCI-compliant processing solution that can protect your business from fraud and abuse. If your payment environment is vulnerable to attack, it doesn’t matter how lean your operations are — it could be detrimental to your success. To make matters worse, cybercriminals are most attracted to startups, since smaller businesses typically have the fewest resources to protect themselves.
Fortunately, we have solutions dedicated to helping startups securely accept payments online, in person, or over the phone.
To learn how our PCI-compliant payment processing solutions and advanced fraud management tools can help safeguard your startup, schedule a free consultation with our team today.