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Unexpected Business Startup Costs: The Expenses You Didn’t Plan For

by Julia Furtado on Aug 30, 2022 8:40:17 AM

If you’re launching a business, you know there are a lot of expenses that come with getting a company off the ground. But in addition to startup costs that you may expect, there are some others you could incur that you may not even be aware of. These unanticipated expenses can add up quickly and create undue stress as you start your business if you don’t properly plan for them. To help you best budget, let’s look at what these could be.

In this article, we’ll look at unexpected startup expenses you may need to plan for. After reading this, you’ll uncover the hidden costs you may face so you can adequately prepare to launch your new business.

Top 9 Business Startup Costs You May Not Have Considered

As you get ready to launch your business, here are some hidden startup expenses you should investigate to decide if you need to budget for these extra costs.

1. Insurance

When you run a business, you also run the risk of liability for everything from an employee’s actions to injuries a customer may suffer on your property or from a product. Since the costs can be significant to your business, you’ll likely want to consider business insurance to protect your future.

There are various types of business insurance products available. Some of them include:

  • General Liability
  • Commercial Property
  • Business Income
  • Workers’ Comp
  • Professional Liability
  • Product Liability
  • Employment Practices Liability
  • Cyber Liability
  • Commercial Auto
  • Commercial Umbrella

The costs can vary depending on factors like where you’re located, your industry, how many employees you have, claims history, and the coverage limits and deductibles you select so you’ll want to shop around for adequate protection that fits within your budget.

2. Employee Benefits

If you decide to offer benefits to your employees like health insurance, you’ll likely contribute some amount toward the premiums. While small companies with less than 50 full-time workers aren’t required to offer health insurance, you may still want to since it remains the most sought-after benefit among workers. The coverage is also the most expensive benefit. In fact, in 2021, the cost for family coverage was $21,804, of which employers contributed $13,737. For single coverage, the average premiums were $7,813, with employers contributing $6,485.

 Other benefits will also cost you. For instance, if you opt to offer a 401(k) to your workers, you’ll likely have an initial set-up fee plus ongoing administrative costs if you use a third-party administrator to maintain your plan and handle tasks like statements, annual nondiscrimination testing, and more. If you’re a small company with 10 employees, you can expect to pay $1,400 to $5,600 to get your plan up and running and cover the first year of administration.

You can also boost your benefits in a more cost-effective way with voluntary benefits. These can include products like life insurance, vision coverage, identity theft policies, pre-paid legal services, and more. In most cases, voluntary benefits are 100% paid by the employee; however, you may want to contribute partially toward the cost. 

3. Professional Services

From attorney and accountant fees to marketing consultants and payroll services, you’ll likely turn to professionals to help you handle some of your operational tasks so you can focus on running and growing your business. There are costs associated with these services so you’ll want to be sure to factor these into your startup expenses. For example, the average cost of an attorney is $250-$350 per hour. A marketing consultant may charge you $100-$150 an hour or more for a firm to help with things like a logo, brochure, website, or brand strategy.

While there’s a cost to these services, in some cases, the price of not utilizing them can be steeper. For example, while you may pay $200-$250 per employee per year for outsourced payroll services, the risks of doing it yourself may easily justify that expense, such as errors, late payments, or compliance issues. 

4. Rent and Utilities

Depending on your location, you may be responsible for a number of expenses to run your business like rent for your building and possibly even maintenance. The type of space you lease will drive the price but the average cost is $35 per square foot for US offices. Retail and industrial locations are less but this will give you a good idea of the fees you’ll need to account for.

In addition, you’ll have energy and other utilities to pay for such as water, Wi-Fi, and phone. The average cost of utilities for commercial buildings is $2.10 per square foot.

5. Staff

Even if you’re just planning to hire 1 or a handful of employees to start, every new hire will cost you more than just their wages. In fact, you can expect to pay 18% to 26% more than a worker’s base salary for a new hire. Why?

There are a lot of expenses involved with bringing on a new employee. These include:

  • Recruiting costs like advertising for positions and running background checks. On average, a company spends about $4,000 to hire a new worker.
  • Training to get them up and running: Companies spend over $1,200 per learning on training.
  • Workers’ comp insurance: The costs for coverage, which is mandatory in every state but Texas, will vary based on your industry and type of work your employees perform, but you’ll still need to account for these premiums.
  • Overhead: You’ll need to consider the cost of certain things a worker may need to get started like a computer, cell phone, chair, clothing, or other items. Plus, you’ll have overhead for IT services, utilities, and office space.
  • Payroll taxes: One of the biggest costs you’ll incur with a new employee is payroll tax. For example, the employer portion of FICA includes 6.2% of gross wages for Social Security up to the wage base limit and 1.45% for Medicare.

6. Equipment

No matter your industry, you’ll rely on equipment to deliver your products or services, operate your business, and more. Computers, printers, and copiers are typical in office environments; you’ll need machinery if you’re in manufacturing; and a restaurant will require ovens, stoves, and cooking utensils. Equipment requirements will vary depending on your industry but generally speaking, the costs for startups can range from $10,000 to $125,000. 

7. Software

In addition to computers, you may also need software tools to run your business. These may run from CRM and other sales tools, a point of sale system, accounting software, collaboration and project management tools, and countless others. The license fees for these can vary depending on how many users (for example, small business CRM software plans start from $12 to $20 per user/month) and the pricing model you select. For instance, a subscription model can be monthly or annual. Pay-as-you-go is based on your usage. While others may have a “free” base model then charge you a premium if you add features or functionality.

8. Taxes

After payroll, taxes are usually the greatest expense for most businesses, so don’t forget to add them into your startup costs. That’s because the estimated average federal tax rate for small businesses is 19.8%; your actual rate will vary based on your business structure. Fortunately, there are lots of small business tax credits you may be able to take advantage of to lessen your burden.

Some credits you may be eligible for include a health insurance premium credit if you help pay for your workers’ premiums, a paid family and medical leave credit if you offer that benefit to employees, a research and development credit if you’re investing in innovation, and a retirement plan startup cost credit if you plan to start a retirement plan for your employees. We’ve listed more small business tax credits here. 

9. Supplies and Administration

Office supplies, printing and mailing costs, and cleaning and break room supplies aren’t typically too costly but you’ll still need to account for them in your budget. For example, if you have 1-4 employees, you may spend as much as $1,100 per employee per year for things like pens, paper, staples, and computer consumables like ink for the printer. And the average small business spends about $338 per month on postage.

How to Best Save on Startup Costs

As you can see, there are a lot of startup expenses that you may not have expected. Yet these are important to factor into your planning as part of a successful launch. Since a proper budget is just one of the things you’ll need to tackle to get yourself set up, read our next guide on the key steps you need to take when launching a startup.

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