Dreaming of starting an online business without spending much money?
Good news! You can start a business from home for cheaper than a traditional brick-and-mortar location. Here’s the bad news…
Starting an online business still has dozens of hidden expenses. These sneaky startup costs add up quickly and can burn through your budget before your first sale.
The best way to handle these expenses? Know what’s coming so you can budget accordingly.
Here’s what we’ll cover:
- Why Online Businesses Aren’t Free To Start
- Hidden Expenses You’re Not Considering
- All About Virtual Mailing Address Services
- Ways To Stretch Your Startup Budget
Why Online Businesses Aren’t Free To Start
Okay, let’s have a little reality check first…
Small business owners spend $40,000 in their first year on average. This fact shocks most budding entrepreneurs that believe they can start a business for cheap.
Yes, starting an online business will cost less money than a traditional store with a physical location. But “cheap” doesn’t equal “free.”
Truthfully…
Even the most basic online business will have costs associated with it. Software subscriptions, various services, tools, and more. Online business owners that succeed versus those that don’t often make the distinction by knowing these costs ahead of time.
Something as simple as having a professional business address will set you apart. Virtual mailing address services like ipostal virtual address allow businesses to have a street address to list as their official mailing address. Using a virtual address keeps your home address hidden and looks more professional to your customers.
Cool, right? Virtual mailing services are just one piece of the puzzle.
Hidden Expenses You’re Not Considering
If you’re sitting down and writing out startup costs, you probably consider the obvious things. Website costs, domain registration, perhaps some ads here and there.
The truth is…
The expenses most entrepreneurs fail to consider are the ones that sink most startups. Let’s discuss the ones nobody likes to talk about…
Software Subscriptions
Who doesn’t love software?
Wait…it sounds worse than it is.
Point is, software gets expensive when you realize how many shiny new things you can subscribe to as a business owner.
Email marketing platform. Bookkeeping software. Project management. Customer support software. Graphic design programs. Payment processors.
Don’t get me wrong, these things are necessary for entrepreneurs. The point is that when you start adding up all of the subscriptions you’ll need, it gets expensive quickly.
And here’s the kicker…
You pay for stuff you don’t use. You choose the “premium” plan when all you need is the baby plan. An audit of your software subscriptions each quarter could save you hundreds of dollars per year.
Legal Fees & Cost Of Compliance
Every single entrepreneur gets caught off guard by this one.
All businesses need…
Wait for it…
You guessed it. Legal Protection!
Forming an LLC or Corporation. Business licenses. Permits. Website privacy policies.
Does your business sell online? You’ll need a sales tax permit.
Physical location? You may need a local business license.
Oh and annual renewals are usually required for most licenses and permits. Always budget for new legal fees and upkeep.
Payment Processing Costs
Every time you get paid, someone else gets their cut.
Credit card processing usually ranges from 1.5%-3% per transaction. Doesn’t sound like much until you start doing the math. If you process $5,000 a month in credit card sales, that’s $75 – $150 gone from your profit margin.
Oh and did you know that some payment processors charge monthly fees as well? Read your fine print carefully.
Professional Business Address
You want to run your business from home. Who doesn’t?
The problem is, using your home address as your business address isn’t ideal.
Privacy is an issue. You don’t want your home address publicly listed on business registries. Not to mention, your business won’t look very professional to your customers and vendors either.
Virtual mailing address services were created to help business owners like you. A virtual mailbox gives your business a physical street address to list on paperwork. Many services offer mail scanning, mail forwarding, and even package handling.
Prices range based on the provider you choose. Some providers offer a basic plan starting at $10-$15 a month. Others have premium packages with added services for $50+. No matter the cost, it’s well worth the investment.
Don’t Forget Insurance
“I run an online business. I don’t need insurance.”
Uh oh…
If that’s what you’re thinking, prepare to have your bank account completely drained.
General liability insurance. Professional liability insurance. Cyber insurance. You name it. Take the proper steps to protect your business. Don’t risk it all by going without insurance.
Taxes
Ah yes, taxes.
Until you start a business, you’re used to payroll taking care of these things for you. As the owner, you’re responsible for sending in quarterly estimated taxes as well as a self-employment tax.
Depending on where you live you may be required to pay state and local taxes for your business as well.
Plan ahead and set aside 25-30% of your earnings for taxes right away.
Marketing Materials & Advertising
Free marketing is not illegal.
There’s a lot of ways to market your business organically. But when you need customers yesterday, you have to spend money.
Social media won’t help you right away. Content marketing and SEO is a long game. It’ll take months, maybe even years to see considerable traffic from these channels.
Did you know about 35% of small businesses aren’t profitable? Here’s a hint: poor marketing is usually the cause.
Budget for marketing and advertising. You’ll need it.
Technology Costs
That brand new computer you purchased? It’ll die.
The software you use daily needs updates.
That beautiful website you built? It needs security patches.
Technology is a big expense that most people don’t account for. Plan ahead and budget for necessary technology upgrades and maintenance.
Smart Budgeting Tips
Now that you know what you could possibly be spending let’s talk about how to actually handle these expenses.
Don’t launch broke, but don’t overspend either. There are plenty of areas you can save money as a startup.
Invest in the necessary things. Things like a virtual business address and your legal setup are necessary. You don’t need the expensive logo design or premium software subscriptions until your revenue starts coming in.
Track your spending. Use accounting software right out the gate. When you know where every dollar is going, it’s easier to spot expensive categories.
Leave room in your budget. The old adage 3-6 months of expenses saved for your business is a great rule of thumb. You’ll want to have money saved to help with unforeseen expenses.
Review your budget monthly. Sit down and look over your expenses once a month. Cancel unused subscriptions and renegotiate any contracts you can.
What Is EcomBalance?
EcomBalance is a monthly bookkeeping service specialized for eCommerce companies selling on Amazon, Shopify, eBay, Etsy, WooCommerce, & other eCommerce channels.
We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here’s some free resources:
- Monthly Finance Meeting Agenda
- 9 Steps to Master Your Ecommerce Bookkeeping Checklist
- The Ultimate Guide on Finding an Ecommerce Virtual Bookkeeping Service
- What Is a Profit and Loss Statement?
- How to Read & Interpret a Cash Flow Statement
- How to Read a Balance Sheet & Truly Understand It
Conclusion
Yes, starting an online business from scratch costs actual money.
These hidden expenses aren’t listed to scare you. They’re listed so you’re aware of what you might encounter.
Plan now so you won’t have any surprises later. When you know what you could possibly be spending you’ll be better at handling your business’s cash flow.
Remember…
It’s not about who has the most money. It’s about who spends their money wisely.
Budget for the known expenses. And budget for the hidden ones too.
