Hiring amazing team members, purchasing top-of-the-line equipment, financing employee benefit packages, and investing in software are all part of the cost of doing business. A good entrepreneur will factor these costs into their pricing model, but a great business owner will also make the practice part of business operations and at the center of all decisions.
In this article, we’ll break down the costs of starting a business step-by-step and provide you actionable steps to understand the average cost to start a business in accounting.
3 Reasons Why Understanding the Cost of Running a Business Is Critical to Growing Your Firm
In the areas of business services, your expenses can vary based on the type of business model you create. Retail and office space requirements could mean more fixed costs right out the gate rather than gradually over time with a digital business. But there are many other reasons to calculate your business costs that can have a critical impact on the success of your company.
#1: It prepares you to make business decisions with the support of financial data.
As a business owner, it’s easy to want to keep selling your services whether or not you have the time or manpower in place. But your sanity is worthwhile. Some clients will be more profitable than others, so you can balance this as long as you know upfront the costs associated with doing more. Additionally, hiring more staff to complete your work should be based on financial data.
For example, if you want to hire another junior accountant to assist on a low-budget new client, understand the estimated cost of that employee in money and in your time as a business owner. It has to be worth both. Also, retaining top talent can only happen if you have good clients and a reasonable workplace.
#2: It can help prevent burnout as an entrepreneur.
If you’re reviewing and redoing employees’ work or having to spend more time monitoring progress than it feels like it’s worth, check your finances. You can then decide if the money made on that client is worth the squeeze on your sanity, your employees’ wellbeing, and your ability to grow your firm and live the life you want most. You became an entrepreneur to call your own shots in many ways, so shield yourself from the pitfall of being everything to everyone. You’ll burnout fast, begin to hate your work, and question why you started a business in the first place. Protect yourself from this by ensuring your business model and finances match in both your passion and your goals.
#3: Financial data can only improve and help to achieve your business goals.
Whether or not your business is old enough to have goals beyond getting started, you have some idea of how you’d like your life to look as an entrepreneur. You may picture yourself only working four days a week to be able to volunteer in your kids’ school activities or working at night only because that’s where you’re most productive and happy. Use financial data to get you there. You wouldn’t want to work with a client that expected you to be available during typical 9-to-5 business hours. But in the context of landing a name brand client or for the exposure, remind yourself to check the financial details to make a decision.
How to Determine the Cost of Starting a Business in 5 Steps
OK, now that we’ve discussed the reasons for understanding how much money you need to both run your business and achieve your goals, it’s time to break out the calculators and do the math part of this equation.
Step 1: Calculate your startup and fixed costs.
This one is pretty self-explanatory. Be sure to include your staff or freelancers that you use to run your business, such as an executive assistant or bookkeeper. Things that you prefer to pay for in terms of convenience should be considered too, such as marketing or HR.
Here’s a list we put together of expenses to include in your calculation:
- Employee salaries and freelancer expenses
- Software and computer equipment
- Office or retail space and operating expenses
- Inventory, if you also sell physical products
- Professional associations or chamber of commerce dues
- Office supplies and furniture for you and your staff (or offices)
- Health and retirements benefits for employees
- Any costs associated with your digital presence, including: website domain, email software, and document sharing
Step 2: Forecast your revenue.
This can be difficult to forecast if you have few or zero clients to start. But if you think in terms of what you’d like to make to maintain your lifestyle, you can estimate revenue in increments to make investments into additional business services or hire more staff.
As an entrepreneur, you have access to SCORE. This organization is staffed with hundreds of mentors and business professionals to help entrepreneurs in everything from understanding their business costs to helping them balance their business and personal life.
Step 3: Consider your own salary and living expenses.
When you calculated your expenses in Step 1 above, did you consider your own salary and living expenses? Even if you’re planning to bootstrap your business, you need to considerwhat life you’d like to live to plan your business finances appropriately.
These living expenses can also be written-off by a ratio of your home to home office space:
- Mortgage or rent payments and deposits
- Mortgage or rental insurance
- Utilities, like gas, eclectic, water, sewage, and trash
- Internet and cell phone service
- Improvements to your home or home office space
Step 4: Hire a tax expert. Even if you are one.
As we’ve said before, we work with tax experts everyday, but we’re not tax experts, CPAs, or accountants ourselves. Please check with a tax professional about your unique tax situation and hire a financial expert to handle taxes for you.
Even if you’re the expert, you know how critical it is to have an outside, objective perspective on your taxes to ensure you’re not missing anything. If you’re a solopreneur, it’s more important than ever to ask for outside help even to check your work if nothing else.
You can delegate tasks like tracking receipts for tax write-offs during tax season. You can also hire a financial planner to help you achieve your goals as a CEO versus staying in the accountant perspective.
Step 5: Record your finances and keep track.
Once you’ve planned for and successfully implemented starting up your business and establishing a financial plan, you’ll want to keep those good things going by integrating these practices into your firm’s regular operations. Your CPA and bookkeeper can provide references for which software to use for finances, such as Quickbooks or Freshbooks.
Jetpack Workflow can also be used to create team management and internal workflows for your business to complete recurring tasks easily. Assign team members to pull key numbers and complete reports for you to review regularly, so you can always be prepared for investing in your business consistently and making key business decisions backed with financial data.
Starting your own business is a very serious task. Ensuring your work and energy is worthwhile, make sure you prepare for this endeavour to understand how much it costs to start a business and continue to use financial data to make decisions to grow your firm.
Planning for Business Costs Made Easier with a Firm Management Software
It takes a lot of time and money to start a business, but it also takes a lot of organization. When you use a firm management tool, you give your to-do list a place to live in your daily operations. Take back control of your workday, and empower your employees to help you prepare for the future.
Try Jetpack Workflow free for 14 days and feel confident you have your ducks in a row for planning your business’ financial future. Every cost is scheduled for review, and your team has your back, so it doesn’t all fall on your plate.