Entrepreneurship is the in thing right now. Everyone wants to start a business, and for good reasons. Financial independence, professional fulfillment, being one’s own boss and flexibility are just some of the attractions of going into business for oneself. However, one of the biggest drawbacks is the cost of starting up. Obviously, these vary depending on the size and type of business. Even so, some expenses are universal, and keen entrepreneurs need to be aware of them. They include:
- Research
Failing to do your homework is the equivalent of going in blind, and is the reason many ventures fail. Research could come with some costs, including consultation fees and paying to access proprietary information, but this is money well spent.
- Permits/licenses
In order to avoid costly fines or the possibility of being shut down, you must pay for the necessary licenses and permits. Because different kinds of businesses require different types of documentation, here is where your research will come in handy. Many government agencies have made it easier to acquire licenses by allowing you to apply through their websites and pay through mobile money or debit card.
- Overhead/ongoing costs
Overhead is the cost of doing business. These usually include administrative and business expenses such as rent for office space, wages and utilities (internet, water, electricity, cleaning, etc). Invariably, overhead is around the same amount each month, so it is important to calculate how much it is and budget accordingly.
- Inventory and Equipment
When starting out, a huge chunk of your capital will go into acquiring equipment and supplies for your business. The decisions you make here will have huge implications on your bottom line. Are you leasing or buying equipment? New or used? Who is your supplier for inventory? Are you getting a discount? Are you importing or buying locally? Whichever option you go with should balance between saving money and getting good quality.
- Staffing
Even though wages are covered under overhead, when establishing your business, acquiring staff will have a one-time cost implication, over and above overhead. Recruitment, involves advertising, shortlisting, interviewing, and selecting, all of which cost time and money whether you do it in house or outsource. There is a great temptation to spend as little as one can during staffing, but remember, your employees carry the burden of actualizing your business. You need to get the best. If spending a little extra will help you get the best, why not do it?
- Marketing
For a new business, marketing is what will let your target audience know you exist. Traditional marketing such as TV ads and billboards are costly. On the other hand, digital means are marginally cheaper, with social media being the most affordable. Depending on who your buyers are, a strategic approach to marketing could see you spend less while reaching the most people. Experts advice that your marketing budget should not exceed 10% of your total capital.
In summary, starting your own business can be a very rewarding experience on so many levels. If you are looking to venture into entrepreneurship, you need to be prepared for the costs that await. You will also probably run on a loss during your first year. Regardless, by being aware of the expenditure beforehand, you can plan well enough to avoid spending any more than you have to.
Importance of Personal Financial Planning
