Business startup costs that shock new owners
Learn how to head off nasty financial shocks that can derail your dreams.
The costly things nobody tells you about
1.Your business runs on a pricey commodity2.Tiniest delay at launch can cost big bucks3.Businesses pay more for phone, other services4.Minimum-use fees impact bottom line5.Too much inventory can spell disaster6.Getting goods into retail outlets isn’t all profit7.Self-employment taxes can be staggering8.Not all insurance policies cover all disasters
1. Your business runs on an expensive commodity
Fred retired to open his dream business: a personal concierge service. He operates out of his home, saving on office expenses — that’s in his favor. But the business, which offers everything from personalized grocery shopping to ferrying the kids to soccer practice, is losing money faster than a politician forgets a promise.
The reason? Fred launched shortly before gasoline prices started rising. Not only does the gas he uses keep him from making a profit, but would-be clients are cutting back on luxuries — like Fred’s services. And to keep his business afloat, Fred maxed out his credit cards and went more than $10,000 in debt.
While it’s true Fred couldn’t control the cost of fuel, all the signs of rising gasoline prices were present when he opened. Blinded by the excitement of being his own boss, Fred simply refused to take a realistic look at his prospects of success. He also invested heavily in business equipment, such as a new computer, fax machine, copiers and supplies, as well as marketing materials. Fred’s failure to see the viability of his business venture before making the leap led to a nasty surprise.
Expert advice: Julie Lenzer Kirk, who teaches entrepreneurship at the University of Maryland and is the author of “The ParentPreneur Edge: What Parenting Teaches About Building a Successful Business,” says you can avoid Fred’s fate by saving a minimum of three months’ worth of personal and business expenses.
“Regardless of the business, it generally takes longer to make money than most entrepreneurs think,” Kirk says.