7 Hidden Costs of Starting a Small Business

Feb 2, 2022 2 min read

Starting a new business is exciting … and expensive. According to a 2020 LendingTree article, the median initial funding requirements to start a business across all sectors was $142,961 — and some industries had much higher averages.

There are many expenses to consider when financing a new business, including renting and renovating the perfect storefront or office, purchasing furniture and supplies, advertising and salaries. Even the most meticulous entrepreneurs forget about these seven essential (and often overlooked) startup costs.

1. Permits and Licenses

You might need a permit to renovate a storefront or sell alcohol in a restaurant and licenses to sell stocks or start a nail salon; some cities even require business licenses for sole proprietors working from home. Be sure to check with local, state and federal agencies about the permits and licenses that are required to operate a business in your area.

2. Staff Extras

Although salaries are the biggest expense associated with hiring staff, the cost of employee benefits adds up and might not be factored into your budget calculations. The costs of workers compensation insurance, employment taxes, healthcare and paid vacations can add significantly to the employee’s base salary. Typically, these costs comprise about 30 percent of the employee’s total compensation package.

3. Insurance

A business needs to be protected, and the amount of coverage you need depends on your specific company. You might also need property insurance, product insurance and errors and omissions coverage. Talk to your Farm Bureau agent about the cost of coverage for your specific business.

4. Professional Services

Engaging the services of legal and financial professionals is essential for startup success. A lawyer can help you determine the right business structure, set up entities such as an LLC, S-Corp or C-Corp, navigate red tape and make sure all operations are within the letter of the law. An accountant can maintain payment records, find (and claim) deductions and ensure all of the right forms are filed with the IRS.

5. Memberships

Belonging to industry associations or local chambers of commerce can help with networking and professional development, but membership comes at a cost. While these dues are important at startup, be sure to review your memberships annually and only renew those that are providing a return on investment (ROI). 

6. Merchant Fees

The Federal Reserve reports that nearly one-third of consumer purchases are paid for with debit cards. Banks and card issuers charge merchant fees to process these transactions, and those fees, which range from 1.55 to 3.5%, can take a bite out of the bottom line. Since paying with plastic is so prevalent, these fees must be considered part of the cost of doing business and should be included in the budget.

7. Repairs

When the copier breaks, computer software needs to be upgraded or the toilet overflows, calling in a pro to make repairs or replace equipment might not be in the budget. In addition to adding a line item to the budget to account for unexpected repairs, remember to save receipts to deduct these expenses on your business tax returns. Taking these hidden costs into account when starting a new business will help you better balance your budget and plan for startup success.

Get Professional Advice

Talk to a Farm Bureau Financial Advisor about the costs involved in starting your small business.


Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.