I’m sure you guys know how important it is to understand the real cost of setting up a small business, and todays post written by Kenneth Sytian will definitely answer most questions those of you who only plan to become entrepreneurs might have. So sit back, take a cup of coffee or tea and enjoy the wisdom Kenneth has to share with us.

Putting your business idea into motion is a beautiful thing. When you decide to start a company from scratch, you probably plan a small business budget to cover various expenses. Many times, it’s easy to neglect hidden costs. Find out the real cost of starting a business. The cost of starting a business varies depending on factors like industry, location, and the entrepreneur.  According to the Small Business Administration (SBA), the average startup cost was $30,000 in 2009, but some businesses only paid $3,000 or less.

The range in business startup costs goes to show that there is no absolute way to predict the total cost of establishing a new company. However, there are steps you can take to budget your startup. Take a look at these real costs of starting a business.

Inventory

This expense is a bit obvious. If your business sells products, you know you need to purchase goods. Aside from the raw materials, there is another inventory-related expense. If you damage or lose one of the goods you bought, it is known as shrinkage. This means you paid for the goods, but don’t receive anything in return.

Insurance

From the day an entrepreneur starts a business, he exposes himself to certain risks. Even before the first employee is hired, a business is at risk, making it important to have the right insurance in place. One lawsuit or catastrophic event could be enough to wipe out a small business before it even has a chance to get off the ground.

Fortunately, businesses have access to a wide range of insurance types to protect them against these dangers.

It’s important that you have liability insurance to protect your business. You might need other types of coverage, like workers compensation, errors and omissions, and property insurance.

Rent

Finding the right location for a retail business can be challenging, and the cost of renting a space is overwhelming to some business owners. By renting a smaller space, you may be able to save money, and landlords who rent small spaces are often accustomed to working with smaller businesses.

Don’t forget to account for how much you pay to rent the physical business building (if applicable). Most owners pay hundreds, or even thousands, of dollars each month for this overhead expense.

Taxes

Business taxes aren’t just about income taxes. Just like people in general, businesses must pay several different kinds of taxes.

Taxes for businesses come in several varieties: federal, state, and local. There are also different types of taxes depending on various business activities, like selling taxable products or services, using equipment, owning business property, being self-employed, having employees, and, of course, making a profit.

If you are just starting your business, you need to know what taxes to pay. If your business has changed – if you have bought property or started hiring employees, for example – you’ll need to know about the taxes associated with these activities.

As a business owner, you need to pay estimated taxes to cover self-employment and income taxes. Since you don’t have anyone withholding taxes from your paychecks, you are required to pay taxes yourself.

Employee Wages

Maybe you have one or two employees helping you to start your business. Employee wages can make up a significant portion of your business’s expenses. And, there are employer contributions for taxes and optional contributions for benefits (i.e., retirement or health insurance plans).

Professional Fees

To get your business up and running, you might enlist the help of some professionals, like lawyers and accountants. They can help establish your business structure and address your finances.

Permits and Licenses

Before starting a business, make sure you purchase the right license or permit to run it. Almost every business needs a license or permit. What you need depends on your business location and industry.

One of the first tasks for any new business is to obtain licenses and permits and an ongoing business may make changes that require new licenses or permits. Some licenses and permits are federal, some state, and some local.

Following are some of the most common licenses and permits homebased small-business owners may need and where to go for more information.

• Business License. Contact your city’s business license department to find out about getting a business license, which essentially grants you the right (after you pay a fee, of course) to operate a business in that city.
• Fire Department Permit. You may need to get a permit from your fire department if your business uses any flammable materials or if your premises will be open to the public.
• Air and Water Pollution Control Permit. Environmental protection regulations may also require you to get approval before doing any construction or beginning operation. Check with your state environmental protection agency regarding federal or state regulations that may apply to your business.
• Sign Permit. Some cities and suburbs have sign ordinances that restrict the size, location and sometimes the lighting and type of sign you can use outside your business.
• County Permits. County governments often require essentially the same types of permits and licenses as cities. If your business is outside any city or town’s jurisdiction, these permits apply to you. The good news: County regulations are usually not as strict as those of adjoining cities.
• State Licenses. In many states, people in certain occupations must have licenses or occupational permits. Often, they have to pass state examinations before they can get these permits and conduct business.
• Federal Licenses. A few types of businesses do require federal licensing, including meat processors, radio and TV stations, and investment advisory services. The Federal Trade Commission can tell you if your business requires a federal license.
• Sales Tax License. Sales taxes vary by state and are imposed at the retail level.
• Health Department Permits. If you plan to sell food, either directly to customers as in a restaurant or as a wholesaler to other retailers, you’ll need a county health department permit.

Miscellaneous Fees

This is not an all-inclusive list of business expenses. There are also miscellaneous fees you might be saddled with from time to time, like advertising and credit card fees.

Some other expenses you might have include recruiter fees or the cost of training employees. Make sure you think of all possible expenses that are specific to your business.

Keep in Mind…

Many business startup costs are tax deductible, meaning you will subtract them from your business’s total income before calculating your business’s taxes. This lowers your business’s tax liability. You can deduct expenses like insurance, employee wages, and rent. Consult the IRS for more information.

If you are budget-conscious like most small business owners, you will need to shop around to get the best rates on all your expenses. Compare prices before making decisions.