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How Much Does It Cost to Start a Business?

More people than ever are deciding to start their own businesses, so why should you be any different? Whether you choose to acquire an existing company, start one from scratch, or purchase a franchise, there are a number of costs associated with buying a business. Knowing what they are and calculating in advance how much you'll need for each item will save you tons of time, headaches, and even money down the road.

Primary Business Start Up Costs

Different small business start-ups will have all sorts of different start up costs. For example, retail businesses need storefront locations and the people to run them during business hours. Work from home businesses need none of that, but you will instead incur costs to remodel and stock the spot in your home from which business will be conducted - as well as investing in a secure lock to keep out the kids while you're trying to close a big sale. The business cost start up variables you will most likely encounter - no matter what kind of business you choose to own - include the following:

- Fees to professionals - Any owner of a new business requires the services of an attorney to draw up articles of incorporation or other company-forming materials, plus an accountant to keep the books straight and the I.R.S. satisfied. Expect to pay anywhere from $100 to $300 per hour for an attorney; a month-to-month agreement with a licensed CPA could run you $100 or more per hour.

- Technology - New computers ($1,500 to $2,500, depending on software and peripherals needs), printers (some as low as $150) and cell phones (minimum $50 each plus air time) are only the tip of the iceberg. Also included in this category are Internet access (up to $100 per month), plus Web site design and maintenance (figure $500, plus a monthly hosting fee of not less than $50).

- Administrative expenses - Business insurance (assorted kinds, rates and coverage), office supplies (assume a minimum of $1,000 to begin), and things like permits and utilities all fall under this category. Some municipalities even require you to purchase a business license if you're operating a company out of your home.

- Sales & marketing - The general rule of thumb in a start-up is to figure spending anywhere from 10 to 20 percent of monthly net revenue on sales and marketing. This would include advertising, but also things like promotional materials and attending trade shows.

- Wages, benefits, etc. - Even if you will not have employees on your payroll, you will still incur costs for paying yourself a salary. This includes federal and state income taxes, FICA, plus health insurance.

- Sales costs - Businesses that sells products need to purchase inventory; businesses that sell services need to purchase supplies. Also included in this category is the expense of owning or renting a place of business, if you require such a location.

Don't Forget These Business Start Up Costs

One of the business start up costs most likely to slip under the radar has to do with start-up financing. Since few people have the financial capability to buy a business outright, there is almost always a financing element involved. You will need to consider interest payments and the overall cost of borrowing into your start-up expense worksheet. There is also the need to have operating capital on hand - figure at least three to six months worth of expenses to help you through the slow times until the business begins to show a profit.

Franchise Start Up Cost

If your new business is a franchise, there are additional expenses to consider as well. You will pay a start up franchise fee, which can run anywhere from $10,000 to $50,000. While you could catch a break on advertising expenditures - many companies finance national and regional ad campaigns out of those fees - you will also pay a royalty based upon your monthly gross sales revenues. This will typically set you back from two to five percent, on average.

Closing Question

How do you plan to finance your new business, and what other expenses can you plan for?