There are many ways to start a home business, but each of them has its startup costs. You need to get educated about these costs before you make your home office open for business. Even if you think you have a pretty decent budget, there are some hidden costs which can sneak up on you.
It’s one thing to get the business off the ground, but completely another to turn it into an established one that’s poised for long-term growth. Underestimating expenses will falsely increase your expected profit leading to a lack of capital, which is the most common reason why a small business fails. Before you’re able to deal with the costs you need to understand exactly what you’re going to face. Let’s shed some light on the dark side of finances.
1. Setting up a Home Office
Working from home means you won’t need to rent or buy an office space, which would otherwise be a sizeable portion of your fixed costs. You could simply designate a quiet area of your home where you’ll need a chair, a desk, a phone, and a computer. Of course, you may need some additional pieces such as bookshelves, filing cabinets, water cooler, microwave, etc., depending on what you already got in your home. While this doesn’t seem costly at all, you need to be aware that your office is a crucial part when it comes to the presentation of your business. If you’re going to have customers coming in every day you’ll probably need to create a much larger and better-equipped separate space. This could lead to renovation or even extending your house, so in such circumstances, you should consider taking steps to refinance your loan. This should not only expedite the process of the expansion, but can also crucially lead to smaller monthly repayments on your established loan by going to a lower interest rate. This is, in fact, one of the most common reasons why people refinance in the first place.
2. The Rise of Utilities
This is probably the most overlooked cost – people tend to think that home utilities simply remain home utilities. You’re already paying for water, gas, electric, phone, and internet bills, that’s true. But setting up an office in your home will inevitably make those costs rise. Ink printer and paper supplies don’t grow on trees, either. Maybe you’ll have to install an additional HVAC unit which, besides the price of purchase and installation, also brings upkeep expenses. It’s true that these things are not such a big deal since they’ll only add up a couple of thousands per year, but they can turn out to be if you don’t account for them during the preparation of your budget.
3. Marketing Strategy
In order to put your business on the road to success, you need to promote it. People usually start with physical marketing materials such as business cards, signs, and banners, but soon promotion becomes much more than that and it requires a smart marketing strategy. Attracting clients is a priority, so many business owners easily plunge into paid advertisements, videos, and all kinds of more creative options which in the end usually require hiring the services of external companies. The hidden costs of marketing lie in the fact it’s incredibly easy to get carried away. In the beginning, you should keep overall marketing costs to a minimum and making the most of social media is the best way to accomplish this.
4. The Necessary Evil
Of course, we’re talking about taxes which come around every year. The worst thing is that you can’t plan out their percentage in your budget since they depend on a number of factors such as deductible expenses and revenue, which is also impossible to predict. Although you’re your own boss, hiring a professional accountant is probably the best way to shed some light on these hidden costs. And don’t follow the logic that there won’t be much to tax if you’re not making much – self-employment taxes actually make this particular situation rather painful.
5. Safe & Sound
There are countless things which can go wrong, so your business needs protection. There are many types of small business insurance, although you may not think you need a lot of it in the beginning. Nevertheless, as your business grows so will the need for various insurance policies. The costs are extremely variable, so the key is to figure out what type of insurance your business needs which depends on your industry, whether you have additional employees, and other risk factors involved.
Your home is not an office before you turn it into one, followed by the growth of your utility costs. There are tons of available marketing strategies, but you don’t need all of them in the beginning. Taxes are inevitable, but a professional helping hand can at least make them more predictable. In the end, before you buy every available insurance policy, think about the actual risks.