Amid all the feelings of starting a business, entrepreneurs must also keep a tap on their costs. If not handled well, small business startup costs can cripple a business.
It can be stressful to identify startup costs, calculate them, secure the funds, and worry about your business’s long-term profitability.
Certain types of businesses, like home-based startups, have lower entry barriers than others. However, you mustn’t make the common mistake of jumping into a business without adequately considering if you can afford the startup costs relevant to the business you intend to start.
In this article, I will share with you 15 small business startup costs and some of the best ways to keep them in check for the profitable sustainability of your new business. Before we dive in…
What Are Small Business Startup Costs?
Business startup costs are the expenses incurred before your new business starts operating. In other words, these are the bills or expenses you will need to cover as you prepare to launch your business.
Startup costs indeed differ from business to business; however, every business will incur some startup cost in one form or the other.
Your business will likely fall under either a brick-and-mortar, online, or hybrid model, and each option has its distinct startup costs.
Read also, Best Businesses to Start Right Now.
Types of Small Business Startup Costs
Your business will incur these two types of startup costs – fixed and variable business costs.
Fixed Startup Cost
Fixed costs are one-time costs that must be paid whether your business turns over a profit. Examples include business incorporation costs, monthly rent, insurance costs, etc.
Variable Startup Costs
Variable business costs, on the other hand, are cost items that change in line with sales or production volume. With increased production, all things being equal, variable business costs will increase. Variable costs include inventory, shipping and packaging costs, etc.
Small Business Startup Costs Entrepreneurs Should Know
1. Business Incorporation, License, or Registration Fee
Congratulations on starting your business. One of the first tasks you’ll need to undertake at this initial stage of your business formation is to choose a business entity for your new startup company. Here are some business structures to choose from.
- Business Name
- Limited Liability Company (LLC)
Understanding the proper business structure to choose from may be difficult. In this video, we shared the factors to consider before choosing a business structure.
The average cost to register a business here in Nigeria can range from N10,000 to N150,000 or more, depending on the registration type and business structure. Our sister company ReDahlia can register your business. Call on 08188122223.
And for business activities that fall within the jurisdiction of highly regulated sectors like health, legal, or food and beverages, additional costs may be involved in the form of operating licenses and permits. So you need to be aware of all these costs.
We offer simple and seamless business registration with CAC. Find out more.
How To Save Cost When Incorporating Your Business
- Depending on the type of business registration, you can begin and complete the process of registration online on the web portal of the government agency in charge without going through a third party that will charge you service fees.
- You can start with the lower structure and upgrade as your business makes money.
2. Office Space
Certain types of businesses can be started from home. But if your business requires office space for its operations, you need to factor in the cost of renting, leasing, or buying an office space as part of your business startup cost.
The cost of the office space depends on the business location and the size of the office space. For example, in Lagos, Nigeria, office space rental costs a premium price on the island part of the city more than on the mainland part of the city.
How To Reduce Office Space Cost
- Start small by renting a co-working space/office. Co-working spaces/offices are cheaper than your regular office space rental or lease.
- You can also team up with a friend or associate to rent an office space that both of you can share.
Find out more about the best co-working spaces/virtual offices at the heart of Ikeja Lagos.
Irrespective of your type of business, there is a strong probability that it needs some equipment to get off the ground and start running. This is because your business equipment sets are your tools of trade. Hence, they are a critical part of the operation of the business and, therefore, must be given utmost priority.
Your business equipment list may include some of the following depending on the type of service your business is rendering:
- Computer devices
- Sewing machines
- Commercial grade ovens
- Industrial washing machines
- Industrial printers
- Laser cutters
- Trucks, etc.
How To Reduce Equipment Cost When Starting A Business
- Buy fairly used machines that are still in good working condition.
- Lease some equipment where possible since outright purchase might be too expensive.
- Stick to your order of priority by getting the equipment that is most needed first.
- Lease out your equipment when not in use.
Utility costs cut-across both brick-and-mortar and non-brick-and-mortar spaces so long your business uses a telephone and an internet connection. Some of these costs include:
- Electricity bills
- Fuel bills
- Water bills
- Internet bills
- Phone bills
- Special software license renewals, etc.
How To Reduce Utility Costs When Starting A Business
- Turn off utility meters when not in use.
- Regulate usage to ensure that utilities are used for official purposes only.
Labour is an important component of factors of production. Yes, it is, and of course, you have to pay for it. So payroll cost can be one of the most significant cost items for your business, depending on how big it is and the labour intensity involved in your production process.
You must understand that finding quality team members and compensating them with fair and competitive wages will help your company succeed. Aside from salary and wages, you may decide to factor the following costs into your company’s payroll expenses:
- Paid leave allowance
- Overtime pay, etc.
How To Reduce Payroll Costs When Starting A Business
- Only employ key staff members at first until the business stabilises.
- Outsource some of the roles
- Use ad-hoc staff in peak periods
- Do not recruit in expectation. Recruit only when necessary
- Improve your skills so that you can multi-task where possible
6. Professional Consultants
Hiring a professional consultant may seem wasteful and unnecessary for new businesses. But this is not true as the cost of hiring a professional at the dawn of your business life may prove to be a wise decision.
Again, for certain types of business, especially within the highly regulated sectors of the economy, it may be a mandatory legal or professional requirement to hire one when carrying out some projects. In all, the nature of your business and the complexities involved in running it determines to a considerable extent if you will be hiring professional consultants or not.
Find out how to develop a comprehensive Sales and Marketing Plan Template for your business here.
How To Reduce Consultancy Fees When Starting A Business
- Where the competency exists in-house or technology is available, do not hire an external consultant to do the job. For example, using software like QuickBooks is a great way to keep the bookkeeping consultant at bay.
Your business deserves protection from unforeseen events. As a new business owner, insurance is another critical cost you should budget to protect your business.
Depending on the type of business you operate, some types of business insurance coverage may be more important than others. And in fact, they may be legally mandated by the authorities. Below are some of the insurance options you may want to consider:
- Business owners’ policy
- Workers’ compensation
- General liability
- Professional liability
How To Reduce Insurance Fees When Starting A Business
- Signup for multiple business insurance policies with the same provider, and you might be given a bundle discount that saves you some cash.
- Ensure to read the terms and conditions and negotiate for better deals.
8. Marketing and Advertising
Don’t wink in the dark. Smile on the rooftop instead. You need to get the word out that your business is finally in town – and how do you do that? Through marketing and advertisement.
You may need to invest in the following channels to spread the word about your products or services when you start your business:
- Social media
- Paid online ads
- Electronic jingles
- Business cards
- Print ads
To keep your marketing and advertising startup costs low, utilise social media platforms for organic outreach and enlist your family and friends to spread the word around.
How To Reduce Marketing And Advertising Fees When Starting A Business
- Leverage social media channels to market your business.
- Advertise content that generates organic interest.
- Learn graphic design skills so that your designs can be captivating
- Use your mobile phone to shoot videos on the go about your business
9. Website Development
Creating a professional online presence is no longer an option but a non-negotiable essential for businesses. As a business owner, you will save some costs if you have the skill set to design your business website. But if you don’t have the required skills to do so, then website development for your company will cost you some money.
Again, a lot depends on the type of business you are running. For those in the e-commerce business sector or running an online business, it is advisable to hire a professional website developer to set up your online shop. This arrangement will save you money and serve your business better.
How To Reduce Website Development Cost When Starting A Business
- Start with free website development platforms like Wix to build your initial web presence.
- There are free versions of plugins; make sure you need that paid plugin before you buy.
- Choose a hosting plan that is tailored to you. Do not pay for what you don’t need.
Not all businesses have inventory, but if you are in the retail, wholesale, restaurant or manufacturing sectors, you need to budget this as one of your startup costs.
Efficient inventory management will contribute to your business success. For instance, if you have too much inventory at your business start-off point, you risk spoilage or being stuck with items that are not selling. On the flip side of the coin, if you have too little inventory, you may lose customers who are unwilling to wait for new stocks to arrive.
How To Reduce Inventory Cost When Starting A Business
- Don’t buy all your inventory items at once. Instead, start with the ones with a high demand rate and shelf-life.
- Consider dropshipping
11. Cost of Finance
Unless you are bootstrapping your business, you may need to source for a loan to start your new business. Cost of finance, in this instance, refers to the total costs incurred in sourcing for the loan and the interest to be repaid on that loan.
If, for example, in the process of getting a loan for your business, you paid consultancy fees to your loan negotiators or other incidental fees, all the fees paid are part of your finance costs.
How To Reduce Cost Of Finance When Starting A Business
- If possible, bootstrap your business
- Consider raising money from family and friends
- Carefully read the terms and conditions of any source of finance
- Repay loans on time
12. Office Furniture And Supplies
Office furniture and supplies are core essentials if you are operating in a traditional brick-and-mortar 9-to-5 office environment. Your employees will likely need desks, chairs, computers, and possibly an office printer.
Again, the type and quantity of your office furniture and supplies depend on the nature of your business and the total number of employees under your engagement.
How To Reduce The Cost Of Office Furniture When Starting A Business
- Buy essentials.
- Buy good, fairly used items still in excellent working condition.
- Imbibe a zero wastage culture in your organisation
- Buy reusable supplies
13. Business Research Expenses
Before starting your business, you may need to conduct market research and other forms of business investigations on your industry. These studies may require you to develop a comprehensive business plan document for your business.
Often, the level of effort and competence required to do this level of study may lie outside your area of expertise. And if it does not, the presence of mind and time needed to do it may not be available to you. As a result, you may need to involve an outside body to take care of it. And this means that their service has to be paid for.
You can hire Entrepreneurs.ng to write your business plan for you.
How To Reduce Cost Of Research When Starting A Business
- You can pay for services rendered in kind instead of cash. For instance, if you run a food delivery business, you can agree with the business developer that worked on your business plan to supply his office with meals during lunch hour for a total duration that covers the original service bill for his service.
- Conduct the research yourself and prepare your business documents
- Get Entrepreneurs.ng to work with you and guide you in preparing these documents
Not every entrepreneur needs to factor this into their business startup costs. However, if your business is into B2B or B2C consultancy, much travelling may be involved.
You will need to factor your travel expenses, including food and accommodation into your startup costs.
How To Reduce The Cost Of Travel When Starting A Business
- You can qualify for your airline’s customer loyalty points promotions if you are a frequent flyer.
- Stay with friends and family when visiting locations where they live. This saves you hotel accommodation costs.
- Consider if some meetings can be done virtually
Those in the retail business will relate that product shipping is an integral component of their service offering. If you are starting an e-commerce or retail business, you must factor shipping into your startup costs together with product packing materials.
How To Reduce The Cost Of Shipping When Starting A Business
- Buy shipping materials in bulk.
- Negotiate discounts with your shipping merchants.
- Input the shipping costs in your pricing
Want to start an e-commerce business? Download our comprehensive guide here.
There you have it,15 small business startup costs you are likely to encounter as a new business owner. As stated above, these costs vary from business to business, with business type and location being key determinants.
Are you a small business owner or an aspiring business owner? Share with us your experience on how you managed your business startup costs in the comment section below. Thank you.