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Costs of running a business: common costs that are overlooked

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Running a business is rarely straightforward. There are many different factors that need to be taken into account. One area that needs your attention is the financial side of things. This is where a lot of business owners make mistakes. They are often guilty of underestimating the costs of running a business or overlooking those costs completely. With that in mind, let’s take a look at some of the most overlooked costs of running a business. 

  • Unexpected office maintenance – Things aren’t going to run smoothly at all times. You need to make sure you allocate some of your funds to office maintenance. After all, you may need to pay for a computer technician, or you may require an electrician to come out to your office to fix any electrical faults. Of course, these expenses are the most difficult to quantify. However, it is important to prepare for them, as things don’t last forever.
  • Trademarking – This is another expense that is often overlooked. Trademarking is a long process and it is a costly one. Not only will you have to pay a fee to trademark your business in one category, but also there will then be an additional fee for every other category you want your business to be in.  You may be debating skipping this altogether. However, this is something you need to think about carefully, as trademarking can be even costlier if your business starts to gain traction and produce revenue.
  • IT support – This relates to the office maintenance section. However, for a lot of businesses, continual IT support is a necessity. If you rely on IT for your business to run, you should definitely align with a company that can provide 24/7 support. After all, every minute spent offline is a minute you are hurting your company’s reputation and profit.
  • Taxes – All business owners recognise that they need to pay tax. But a lot of businesses underestimate the taxes they need to pay. This is because your annual taxes are going to depend on the sort of entity you decide to set up, as well as a number of other factors. You also need to determine what tax structure is right for you.
  • Credit card fees – It is a good idea to give customers as many payment options as possible, and this usually means that they can pay with a credit card. You do need to be mindful, though, that you will be subject to a fee for every credit card payment. This tends to be around 3% of the total charges.
  • Time – You know what they say: time is money. If your business is not running as efficiently as possible, it’s going to cost you financially. You can’t afford to waste time – it is a valuable resource.

Administrative costs of running a business when starting up

  • Business registration :  mandatory for all prospective traders.
  • Entry in the commercial register : The entry is not necessary for every legal form – if you set up a sole proprietorship, you can usually do without it. The amount of the fees depends on, among other things. according to the company value.
  • Lawyer and notary fees: Usually only payable if an entry in the commercial register is necessary, i.e. for corporations, and are based on the object value of your company.
  • Tax advisor : Most companies pay mainly for the annual financial statements and the regular calculation of input tax.
  • Advice: Optional expenses for consulting for your business model, your idea and other foundation subjects.
  • Registration of trademarks and / or patents : Depending on what you want to protect and how, start-up costs can range from a few hundred to several thousand dollars.

In addition to the administrative start-up costs of running a business that all entrepreneurs have to pay, there are other costs of running a business that are difficult to quantify. Whether these even play a role and how high they turn out depends largely on your start-up idea. You should still keep an eye on the individual areas:

  • Broker fees: You may hire a broker to look for a property and / or suitable staff. This is usually paid on a commission basis.
  • Office and business equipment : Everything you need in the beginning to furnish your rooms and run your business.
    Purchase price or deposit for the rent
    Furnishings, such as furniture, dishes, telephones, lamps, etc.
    IT costs, such as setting up a telephone system, network, etc.
    Equipment with consumables such as paper, printer cartridges, pens, napkins, straws, food, etc.
    Buying or leasing vehicles, machines
  • Marketing costs: To present you, your brand, your product and your opening and to promote it permanently, for example
  • Development of a name, logo, etc.
  • Business equipment, such as business cards, stationery, etc.
  • Advertising (online, offline, competitions, discount campaigns)
  • Design and programming of a website

An important point that is often forgotten: You have to make a living from something even when you are starting up. Therefore, plan a kind of founding salary for you for each month as part of your costs of running a business. In partnerships you plan a private salary withdrawal. Management salary and private withdrawals should not be set too high, but also not too low.

Take into account ongoing costs of running a business

Also important when planning your finances are the costs of running a business that accrue monthly from the moment you open your business. Your goal should be to at least cover these costs with your business – you calculate your prices accordingly. Since the reality but often looks like it will take a few months until you break even (or better yet profitable) work, you should always in calculating your capital needs a buffer for these ongoing costs of running a business to the break-even point. Above all, consider

  • Rent or installment for the property
  • Operating costs and consumables
  • Wages
  • Fees for associations, memberships, service providers

Can costs be deducted from tax?

The short answer is: Yes, you can deduct start-up costs for tax purposes. The longer answer first distinguishes between two types of costs: the actual start-up costs and the start-up investments.

Classic start-up costs are all expenses that you incur once but that have no impact on your company’s value – for example, all administrative expenses and marketing costs. It is important that there is a clearly identifiable economic connection between the expense and your company. Since you can also deduct start-up costs that were incurred up to three years before your actual start-up date, training and further education costs are also included. So diligently collect all the documents relating to your establishment. The costs are then usually billed as “anticipated operating expenses” in the first financial year.

Start-up investments are, for example, expenses for purchases – machines, vehicles, computers, furniture. These increase the value of your company and at the same time reduce your profit and thus the tax burden. Formation costs of this type are recorded in current and fixed assets and can be depreciated over several years. Unless you are very knowledgeable about this area, it pays to hire tax and accounting professionals . In doing so, you generate costs that are also tax-deductible.

Conclusion

Even if you don’t enjoy numbers and finances, both are part of life as an entrepreneur. In the course of a financial plan, which should be part of your business plan, list where which costs of running a business will be incurred. Don’t forget to budget for your living expenses in the form of a starting salary or a private withdrawal. You should also keep an eye on the expected costs of running a business and plan a corresponding financial buffer at least for the first few months .

Have you overlooked some of the costs of running a business that have been mentioned above? If so, make sure you include them into your financial plan so that your business is better prepared. Overlooking costs of running a business can hurt your company in the long run.

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