7 Hidden Costs of Starting a New Business

Starting a business is an exciting, time-consuming process, and one that should be done with thought and care. As you probably know, you can’t exactly create a business from nothing. You need resources to flesh out your business model, invest in employees and equipment and legitimize your company so that it’s operating legally.

A study from the Ewing Marion Kauffman Foundation estimates the average cost of starting a new business at $30,000, but the U.S. Small Business Administration (SBA) reports that many “micro-businesses” can get off the ground for just $3,000 or less.

So even if you have a very small, low-cost startup idea, there will be some things to pay for. Besides the obvious overhead, there are a few things you may not have considered when you decided to launch your big idea.

Here are some components many budding entrepreneurs forget to add into their startup budgets.

1. Filing Your Business with the State and City: From $40 to $2,000

You must file your business with the state in which you live, either as a limited liability corporation (LLC), sole proprietorship, corporation or partnership. The filing fee varies widely based on where you live, from $40 to $500 for an LLC or sole proprietorship and up to as much as $2,000 for a corporation or partnership. Although registering your business may eat into your initial startup budget, you must do this in order to properly file taxes, file patents and trademarks and trademark your business, brand or product name.

2. Getting Bonded by a Reliable Bond Provider: $90 to $1,000 Annually

Some industries require what are known as surety bonds, which typically act as a promise between a business, a government licensing authority, clients, and often times other business counterparties such as suppliers. If the the bonded business fails to meet an obligation, the surety bond protects the other parties. You may need to get bonded before you launch to be sure that your business is in good legal standing and ready to begin providing products or services to your customer base. Bonds vary in annual cost by the amount of the bond, the applicant’s credit score and other factors.

3. Conducting Market Research: $1,000 to $15,000+

Before you sink thousands of dollars into a new endeavor, make sure that it’s one that’s actually appealing and sustainable in the current market. In addition to floating your business idea to your family and friends, you need to put into place some form of formal market research to help you get a good idea of how to run your business and what to focus on. Partnering with a good market research company is the best way to go about this. They will be able to conduct surveys, focus groups and interviews on your behalf to help you identify where to spend.

4. Working with Consultants: $100 to $10,000+

Consulting industry experts is another thing to do if you want to be sure that your model is squeaky-clean. Consultants will be able to help you with all the difficult questions associated with starting a business in a specific area, from advice on different types of equipment to recommendations for products and services that can help your business run better. Before you officially launch a business, it’s a good idea to have at least one industry expert review your business plan and provide you with feedback.

5. Permits and Licenses from Your Local Government: $25+ Each

Your city, county, state and country require different permits, fees and licenses to operate legally, so you need to make sure that your budget can cover these. You have to have the proper state and federal licenses for all sorts of business endeavors, from manufacturing and selling alcohol to operating oversized vehicles. Your city, township or county governments will also require certain permits, such as building permits or retail permits. Check with each entity to make sure that you’ve covered all your bases.

6. Higher Interest Rates Due to Bad Credit: 15-30 Percent

If you have a low credit score, you may also have to shell out extra for many of the basic business-related products and services needed to get started. Loans, bonds and rental costs can raise if you or your partner has poor credit. It may be worth your while to consider working with a credit expert to get your score higher before launching your business, unless you have significant cash in the bank to pay for things without credit.

7. Insurance: $400 to $600 Per Year

Insurance is important to keeping your business protected from any accidents, mistakes and risks associated with the industry. General liability business insurance at the very least is vital, as it covers customer injuries, damage to other properties and lawsuits, among other things. You may also want to look into specialized insurance that covers other factors, including property, transportation, workers’ compensation and other things that may need covered.

There are many factors that might contribute to higher up-front business costs. The best thing you can do when you’re starting a small business is to rely on the experts in your community, especially your local business development center or association. You should also get used to resourcing the U.S. SBA with any questions related to taxes, funding, federal contracting, licensure and more (Also, check this "Small Business Accounting Cheat Sheet" that will help you understand the basics and manage your taxes more effectively). Remember that you’ll often be able to take advantage of helpful tax incentives and breaks to help soften the blow of starting a new business in your community.