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Costs to Factor in When Starting a New Business

Depending on the type of business you are starting, there are costs that are specific to that industry and others that are applicable to all. For instance, if you want to manufacture something, there are costs in getting the tools, machinery, and warehouse space and in employing staff who may need to have certain specific skills or you may have to train them.

Another consideration is whether you will be operating your business from out of your home or garage or if it is a franchise. Micro-businesses may only cost a few thousand dollars to get started. Restaurants or retail stores can cost considerably more.

Many people choose a well-known franchise for the instant name and qualify recognition, while other want their own retail operation. For a franchise or retail store venture, here are common small business costs you can expect:

Franchises

There are numerous franchises available for sale from small pretzel operations to a McDonalds. Any particular small business costs can vary considerably but here are ranges you can expect to pay:

  • Franchise fee of $20,000 to $50,000. This includes the cost of having a site selected for you, training your staff and which may include materials and other benefits. Know what is included in the upfront franchise fee before you buy.
  • Legal fees. You should have a business attorney review your documents before the sale. Your attorney will review the OFOC or Uniform Franchise Offering Circular and the franchise agreement with you. Depending on the size of the franchise, you can expect to pay from $1,000 to $5,000 for attorney’s fees.
  • The franchisor will include in the offer or agreement the build-out costs, such as furniture, computers, equipment and signs. Some items might be included in your franchise fee.
  • You will need to buy a certain amount of materials that underlies your business such as pretzels, burger patties or audio equipment. Your franchise agreement should indicate how much you will be required to spend, which could be tens of thousands of dollars.
  • Business supplies. If it is restaurant, you will need napkins, utensils, plates and glasses, condiments and tablecloths for example.
  • Adequate working capital. Few businesses are profitable right away though a franchise should be faster than most from brand familiarity. Still, you will need daily capital to keep your business afloat to pay for supplies and inventory that need refreshing or restocking. Your franchisor should estimate how much and for how long you will need to keep a steady supply of cash available.

Retail Stores

Opening your own retail store is exciting until you realize you may have to use your own savings since the bank will not loan you any money. You have to consider location since you want foot traffic. You may want to open in a mall located near downtown or in the suburbs or in a vibrant downtown surrounded by thriving businesses. A mall store may cost less but your choice of location may depend on the type of clientele you wish to attract. Other costs to consider:

  • As indicated, it depends on where the store is located. Your rent at a mall may depend on a percentage of your gross sales. Consider hiring a tenant agent to find you one within your price range.
  • Improvement costs. You need to factor in the costs of remodeling the site and including fixtures like shelves, racks, counters and bookcases. The cost of labor is a factor as well.
  • Every store needs inventory and you need a base amount to get going and resupply periodically.
  • Liability insurance. You need this for slip and fall accidents or any other accident that occurs in your store, whether you feel you are responsible or not.
  • Office and cleaning supplies. You will have to use a cleaning service at a cost of a few hundred dollars per month and stock your office with a computer, desk and chair and software.
  • Website design, hosting and tech support. Costs for a decent website, hosting and development can run about $3,500. Tech support is around $600. Your internet costs are about $100 per month.
  • You can rely on word of mouth for only so long. You will of course need interior and exterior signage, trademark registration, logo design, flyers, business cards and coupons. Keep track of the effectiveness of each marketing scheme you use. Radio advertising is less expensive than television but is still costly and usually is only effective if you run ads for several months. You can easily spend $10,000 on marketing.
  • Your grand opening. You can use huge banners, ads in local papers or on the internet or hand out flyers. Costs vary but are generally under $2000.

Other costs may well depend on the contract terms you have with vendors or landlords as well as how large you want your startup. If you have employees, you will need workers’ compensation insurance. Employment contracts may have to be drawn up so legal fees will have to be spent. You may even want to talk to a business owner who recently opened a similar business as yours to get an idea of the funds you will need to get started.

An attorney who advises small businesses is also a good place to start for information about the costs involved for your new venture.

 

 

Dheeraj K. Singhal
About the Author
I help people keep the things they want and get rid of the things they don't want. I have been a lawyer for over 12 years and there are few things I enjoy more then getting great results for the people that trust me with their legal problems.