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How Much Money Do You Need To Open A Checking Account At Bank Of America – Editor’s Note: Lantern by SoFi strives to provide objective, independent and accurate content. Writers are separate from our business and do not receive direct compensation from advertisers or partners. Read more about our editorial guidelines and how we make money.
Starting a business is fun and rewarding. But figuring out how much it all costs and finding those funds can be difficult. A Shopify survey of 300 US small business owners and 150 aspiring entrepreneurs found that they spent an average of $40,000 in their first year of business. But every business is unique, and costs vary depending on the type of business, geographic location, and financial situation of the business owner. Let’s take a look at some common start-up costs and potential financing options to help make your business idea a reality. 7 Costs to consider when starting a business Starting a new business can involve various initial costs. It is important to have a clear understanding of what expenses are likely to be incurred in order to ensure adequate capital and manage cash flow. Here are some typical expenses you should have on your radar before setting up shop. 1. Real Estate and Utilities Unless you’re running your business from your home office or workspace, renting or buying real estate can be a major factor in your business startup costs. Lease terms may require you to pay a security deposit and several months’ rent in advance. If you are planning to buy a place, the down payment on commercial real estate usually ranges from 10% to 30% depending on the lender. In any case, you may want to consider that even rental businesses are often responsible for paying utilities such as electricity and natural gas. In 2019, the average monthly utility bill for commercial real estate in the United States was $647.61. In other words, commercial building owners spend an average of $2.14 per square foot on utilities. 2. Equipment and supplies Virtually every business needs some kind of equipment and supplies to function. Depending on the type of business, this can range from office essentials like printers and laptops to heavy industrial machinery. Equipment is usually a one-time expense, but it can take up a large portion of your startup costs. Instead of buying more expensive equipment, leasing can help you spread your business expenses over a longer period of time, allowing you to save upfront funds for other important expenses. However, equipment may need to be purchased on an ongoing basis. Wholesale or bulk buying helps reduce unit cost of shipping. 3. Licenses and Permits Depending on the nature of your business, fees for licenses and industry permits may be an upfront cost to bring you into compliance with laws and regulations. Some business activities, including agriculture, alcohol production, and transportation, require applications for federal permits. A business may need to obtain and pay for licenses and permits at the state, county, and municipal levels before operating. The business structure you choose can also affect the registration process and associated costs. Some common legal structures include sole proprietorships, limited liability companies (LLCs), and corporations (c-corps). Each has different requirements and associated costs. 4. Insurance You may have purchased insurance to cover your health, home, and car. Business insurance can also protect the business owner and its assets, employees, customers, and other liabilities. Business owners often purchase general liability insurance that protects against third-party injury and property damage claims. The cost of the policy varies depending on how dangerous the particular industry is. Once you’ve hired one or more employees, you’ll also need to start paying workers’ compensation insurance. Other common types of insurance include business property insurance and product liability insurance. 5. Inventory Typically, businesses that sell physical goods, such as retailers, restaurants, and manufacturers, actively maintain inventory of products or the materials needed to make them. For a startup business, building inventory ahead of time can help you serve customers and generate immediate cash flow. Once your business is up and running, maintaining inventory is a balancing act that can affect your bottom line. On the one hand, having insufficient inventory can hurt sales due to your customers back-ordering items. On the other hand, too much inventory creates the risk of damaged or expired items, as well as the difficulty of selling underperforming products. The ideal threshold for how much inventory to keep in your warehouse varies depending on factors such as the industry you’re in, seasonality, historical customer demand, and the time it takes to get orders from suppliers. As you can see, small businesses should spend 17% to 25% of their budgets on inventory, although they may need to spend less when they first start out. 6. Website and TechnologyFree social media platforms such as Facebook and Instagram can be useful for engaging with customers and developing brand identity. However, paying for a website and domain name can be beneficial for integrating a point-of-sale (POS) system for online transactions and providing more detailed information for customers and clients. Remember that most new businesses need cash flow. , the growth of e-commerce means the ability to quickly grow your customer base and sell products before they buy a storefront. According to the US Census Bureau, e-commerce sales in the retail industry grew from 0.6% in 1999 to 16.1% in 2020. Other technologies, such as payroll and accounting software, are common costs that businesses pay to streamline operations. 7. Advertising and Marketing New businesses may want to invest in promoting their products or services to attract customers and clients. Small businesses can typically spend about one percent of their revenue on advertising, although bids can sometimes be a little higher, especially during the startup stages. Traditional strategies like flyers, radio ads, and newspaper ads can get the word out, especially in smaller communities. Social media ad targeting is another option to consider for businesses targeting a specific audience (age, gender, etc.) or geographic area. If you don’t have the time or know-how to fine-tune your advertising strategy, you can hire consultants to help you with more complex marketing tasks like graphic design and website search engine optimization (SEO). Featured: How to Grow an Ecommerce Business Calculating How Much It Costs to Start a Business So, how much does it cost to start your business? The answer can vary greatly depending on your priorities and business model, among other factors. Once you’ve determined which expenses are important, budgeting for six months or more of small business start-up costs can be a little more straightforward. It is important to distinguish between one-time and current costs. One-time costs include the acquisition of assets such as equipment or machinery, but may also include licenses or permits for a particular business. These costs usually occur during the start-up phase or as the business expands. Expenses that must be paid monthly or periodically (quarterly) represent current expenses. Also, sometimes it can be helpful to further sort running costs into fixed and variable costs to calculate how much money you need to start your business. Fixed costs like rent and insurance are consistent from month to month and can easily be predicted in your business’s operating budget. However, variable costs vary depending on factors such as production, production or consumption. For example, the more energy your business uses, the higher its utility bill will be. If you own a store, you may have to pay different prices for heating and/or air conditioning depending on the time of year and the weather. Featured: 13 Ways to Fund Your Startup Sample Small Business Startup Expense BudgetSo let’s take a simplified example. , which does not include fixed and variable costs. Let’s say you are opening a small coffee shop. You will have two lists, one for one-time expenses and one for monthly expenses. They may look like this. One-time Expenses Deposits: Security Deposit and First Month’s Rent $4,000 Utility Deposit $500 Improvements/Equipment: Coffee and Brewing Equipment $2,000 Cups, Mugs, Dishes, Bowls, Cooking Equipment $2,000 Inventory: Beverages $1,000 Food Food $1,000 Miscellaneous: Licenses and Permits $500 Legal Fees $500 Hardware/Software $1,000 One-time Expenses Budget: $13,000 Monthly 20s $500 Property Insurance $250 Employees: Salary $6,000 Payroll Taxes $2,500 Health Insurance $1,000 300Professional Services: Accounting $450 Supplies : Operating Inventory $1,000 Office Supplies $250 Marketing/Advertising: Digital Ads $350 General: Liability Insurance $400 Repairs/Maintenance $200 Total Monthly Expenses Budget: $15,750 Total Start Up Budget When you add the two lists, you get $28,750 you can make dollars. When to Consider a Small Business Loan If you don’t have the savings to pay for start-up costs, you might want to think about it. on small business lending financing. When considering different types of business loans, it’s important to weigh how interest rates, repayment terms, and other factors will affect your business’ bottom line. Here are some popular types of financing. Term Business Loans One type of financing that startups may be interested in is traditional term business loans. This type of financing is traditional bank loans
How Much Money Do You Need To Open A Checking Account At Bank Of America
