Here are some hidden expenses commonly overlooked by entrepreneurs when starting a small business.
- Licenses and permits. Aside from the fees you have to pay to register your business, you also need licenses and permits required based on your business activities. For example, if you sell alcoholic beverages you must meet the requirements of the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau.
- Business insurance. Most businesses need different types of insurance. These include professional liability, general liability, commercial property and commercial auto insurance. If you operate a home-based business, you still need an insurance rider to supplement your homeowner’s insurance policy.
- Business software. Whatever your business is, you will most likely need some type of software for payroll, accounting and other activities. If you have a point-of-sale system, you will have to pay a processing fee for every transaction.
- Social security and Medicare taxes. If you work for yourself, you need to pay a self-employment tax equivalent to 15.3% of your net earnings. That is 12.4% for Social Security and 2.9% for Medicare. If you have employees, you will have to pay half of their Social Security and Medicare taxes.
Knowing your operating cost is vital to business management. You can avoid being blindsided by hidden and industry-specific costs by practicing due diligence and seeking advice from business experts. The Small Business Administration (SBA) is a great resource. It has business advisors who can help you identify lesser-known costs of starting a business.
