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The Hidden Costs of Starting a New Business

Posted by Arya Chatterjee

March 9, 2024

From permits to credit card fees, unveiling the actual price of your entrepreneurial dreams.

So, you’ve got a groundbreaking business idea. You can see your logo splashed across Times Square, your product flying off shelves faster than you can say “add to cart,” and your bank account swelling with profits. But before you pop the champagne and start counting your millions, you need to be aware of a not-so-glamorous side of entrepreneurship: the hidden costs. 

By now, you’re aware that starting a business is akin to embarking on a rollercoaster ride through a theme park called entrepreneurship. Yes, the thrilling highs and exhilarating twists are adrenaline-pumping. Still, there are a few stomach-churching drops, some even with a price tag. 

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Don’t get us wrong; we’re not here to crush your entrepreneurial spirit. We’re only here to peel back the curtain, spotlight hidden costs associated with business ownership, and help you prepare for the journey ahead.  

8 hidden costs of starting a business


1. Permits, licenses, and dues: The red tape tango

Bureaucracy, a.k.a the ultimate party pooper. Before considering selling your products or marketing your services, you’ll need a list of permits, licenses, and dues. Want to open a restaurant? Better slide over cash for health permits, alcohol licenses, and a sidewalk dining fee. Are you thinking of starting an e-commerce store? You need to become familiar with Internet sales tax and e-commerce regulations.

According to a study by the National Small Business Association, small businesses spend an average of $12,000 yearly on regulatory compliance. That’s no small chunk of change. So, before you launch your business, do your homework and budget accordingly, and you’ll thank us later.

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2. Office space & utilities: Renting real estate, one lease at a time

Working from your neighborhood coffee shop sounds ideal. But, eventually, you’ll need a space to house your teams. Enter office space and utilities. Whether you’re leasing a sophisticated studio or setting up a shop in your garage, the cost of rent, electricity, internet, and other utilities can seem eye-popping if you’re not on top of it.

Coy Davidson reports that average class A full-service office asking rates rose 2.1% in 2023 to $42.21 per square foot in the fourth quarter. Add to it your equipment costs, decor, and more. So, unless you’re content with running your empire from your local cafe, it’s time to bring out the calculator and find a space that won’t break the bank. 

3. Equipment, maintenance, and upgrades: Keeping the wheels turning

Every business needs some equipment to get off the ground. Yes, it starts small but can cost a lot. Equipment doesn’t come cheap, and it certainly doesn’t last forever. Whether you’re equipping your office with a state-of-the-art espresso machine or eyeing a fleet of delivery vans, maintenance, and upgrades will be recurring line items in your cost accounting. 

Statista clearly shows the budget spent on maintenance equipment, reporting that one to 20 percent of a small business’ operating budget goes towards cleaning/maintenance equipment and supplies. And we’re not even factoring in the cost of replacing outdated or malfunctioning equipment. So, unless you want to max out your credit card on a shiny new gadget, ask yourself: can I afford to keep it running in the long term? 

4. Employees + benefits: The price of a payroll 

Congratulations, you’re finally in the big leagues: hiring your first team. But before you start planning the extra hands to help grow your business, let’s talk strategy. Hiring employees isn’t just about paying them a fair wage — it’s also about providing benefits like health insurance, retirement plans, and paid time off. 

The U.S. Bureau of Labor Statistics (BLS) has reported that the average cost of employee benefits accounts for 29.4% of the average price per private industry employee, or $12.06 per hour. So, when you start staffing, your business budgeting needs to account for salaries and employee benefits. 

5. Insurance: Protecting your assets (and your peace of mind)

Nobody likes to think about worst-case scenarios, but when you’re a business owner, it’s best always to be prepared. And this is where insurance has your back. Whether it’s liability insurance to protect against lawsuits or property insurance to safeguard your assets, the right coverage can mean the difference between weathering the storm and going under. 

While insurance may come with a hefty price tag, imagine the cost of replacing your entire inventory after a fire or flood or settling a lawsuit out of pocket. Accidents happen, and when they do, you’ll realize that protecting your business from unforeseen disasters is a non-negotiable expense. So, why not be prepared from the get-go? 

6. Shrinkage: The silent killer of profit margins 

Speaking of unforeseen disasters, we must consider shrinkage when business budgeting. No, we’re not talking about what happens when you accidentally put your favorite sweater in the dryer; we’re talking about the loss of inventory from purchase to sale. 

Shrinkage can cut into your profits if you’re not careful, whether it’s due to theft, damage, or just plain old human error. So, before you start counting your dollars, keep a close eye on your inventory and implement measures to prevent shrinkage from eating away at your profits.  

7. Payment delays: Waiting for the cash to roll in 

You’ve done the work and delivered the goods; now it’s time to get paid. Sounds simple, right? No. In business, payment delays are as common as coffee stains on a rushed morning. Whether you’re waiting 30, 60, or 90 days for a client to settle their invoice, those payment delays can fumble the cash flow bag and leave you scrambling to make ends meet. 

Statistics published by LinkedIn report that 54% of SMEs experience late payments, with the average delay being up to 6 days. 33% take over a month, and 20% take over two months. That’s too much time spent playing cat and mouse with clients when you’d instead focus on growth and scalability. So, your next invoice needs to go out with a plan for dealing with payment delays and keeping your cash flow on track. 

8. Credit card fees: The price of plastic 

Credit cards — the double-edged sword of modern commerce. On one hand, they’re a convenient way for customers to pay for products and services. On the other hand, they come with a hefty price tag in the form of transaction fees, processing fees, and additional hidden charges that’ll pop your eyes once the statement arrives.  

The average credit card processing fee ranges from 1.5% to 3.5%. And while that might sound like a minor deal, the costs can pile up quickly, especially when processing hundreds or thousands of monthly transactions. One solution can be offering alternative payment methods to avoid drowning in hidden fees. 

The road ahead

We’ve journeyed through the labyrinth of hidden business costs, dodging red tape, battling credit card fees, and wrestling with the elusive beast known as shrinkage. Armed with the knowledge gained from our adventure, you’re better equipped to navigate the treacherous waters of entrepreneurship. 

Starting a business isn’t just about dreaming big; it’s also about numbers, making tough decisions, and staying one step ahead of hidden costs. Whether exploring alternative funding options like independent business funding or embracing cost-effective finance outsourcing, everything must be reported in your cost accounting ledger to keep your business on track for success. The road to entrepreneurial glory may be fraught with obstacles, but with a bit of wit, determination, and a dash of luck, you can conquer the world, one hidden cost at a time.

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Want to know more? In addition to taxes, accounting, bookkeeping, and CFO services through its FinOps, Escalon’s Essential Business Services include PeopleOps (HR, benefits, recruiting, and payroll) and Risk (business insurance). Talk to an expert today.


Arya Chatterjee
Arya Chatterjee

Arya Chatterjee is a freelance writer and consultant from Mumbai. With a background in journalism and over five years of creative writing experience working with legacy media like Architectural Digest and Femina India and brands like The Label Life, and Macy's, she crafts unique and compelling stories that engage the readers. She enjoys writing about health, beauty, fashion, and lifestyle and exploring the symbiotic relationship between thriving businesses and happy employees through her writing. She is always looking to explore new avenues to expand her creative energy.

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