The Costs of Starting a Business

If you’re thinking about starting your own business, you must be mindful of the costs of starting up a business. The first category of costs are the incorporation and licensing costs. Most startups are formed as either corporations or LLCs, both of which carry filing fees in order to register with the state. startups who are looking to raise private capital typically incorporate in states such as Delaware or Nevada, even though those companies will not be located in those states — this means that those founders will have to pay more filing fees to register their Delaware or Nevada corporation/LLC to do business in their state of residence. Of course, the benefits of incorporating/organizing in Delaware or Nevada can outweigh the additional costs. Even if you plan to operate as a sole proprietorship, unless you are going to operate under your own name, you will need to file a DBA with the city or town where your business will be located. Furthermore, depending on the line of business you are entering, you may also be required to obtain licenses from the state or municipality in order to do business. Filing fees vary from state to state, and vary with the form of business; corporation filing fees can even vary depending on the number of shares the corporation is to have. While some state filing fees can be as low as $60-$80, they can reach into the thousands for corporations with millions of authorized shares. Another expense many startups have, relating to incorporation/organization, is the registered agent. The registered agent is the entity that is appointed to accept service of process and other legal documents on behalf of a company. Corporations and LLCs must have registered agents in every state where they are registered to do business. Therefore, while founders may be able to act as registered agents in the state where they live, for those companies that incorporate in Delaware or Nevada, hiring a company to act as a registered agent is all but a necessity. Registered agents will likely cost you between $75-$150 per year as a base; if you need additional services such as forwarding of served documents, filing of annual reports, etc., the costs obviously go up into the hundreds of dollars. The one startup costs that entrepreneurs attempt to avoid most of all are the legal and accounting fees. Although a solo founder may not need complicated corporate governance documents, they are critical for multi-founder teams. It is important to establish how the business is to be run and the rights and obligations of the founders from the get-go, rather than trying to figure it out when an issue arises; it becomes harder to sort it out when founders become adversarial over a contentious issue. CPAs are also critical for businesses, as the taxes for any business can quickly become incredibly complex and difficult to manage. Of course, entrepreneurs are less than willing to pay for legal and tax/accounting advice because costs will be in the thousands of dollars. But the costs of bringing in lawyers and accountants to fix a problem that could have been prevented in the beginning will be far, far more. Companies also need websites and social media presences. Websites, at a minimum, have hosting costs that can be as low as $50 depending on the company and how much server space and bandwidth is needed. A startup can certainly build its own website; outsourcing it to a developer will probably start at around $500, with the price rising to the thousands the more dynamic/feature heavy the website needs to be. Startups can also manage their own social media presences (Twitter/Facebook/Instagram accounts), while outsourcing it to a media company will cost hundreds or thousands of dollars a year. Finally, startups may also have office or other brick & mortar costs. Although a web or app company can run out of a garage or dorm, there are affordable office options in the form of virtual office and co-working spaces, many of which are focused on startups. For just a few hundred dollars per month, companies can get access to office space in virtual offices and co-working spaces, most of which come with great amenities such as printing, food and beverage, game rooms, social events, etc. Of course, direct-to-consumer, retail companies and the like will likely need brick & mortar space, which carries rent, utilities, insurance, and other costs, which can easily reach into the thousands of dollars per month.

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