We wrote a post some time back that spoke about the nine essential requirements of starting up a business. One of these requirements was providing for the expenses of setting the business up.
In this post we will discuss these expenses in detail and why they are essential to the success of your business start-up.
Cost #1 – Branding/logo/company name
Branding is important. A company name and logo are part of the branding. Without branding your business has no image and no identity. By giving it a name and logo and you enable people to identify your crafts with your business and perhaps with you personally. Without a brand image your crafts could have any origin. Branding is essential for pricing your product.
People pay for a brand name just as much as they pay for the product itself. If you want to put premium pricing on your craft work, you need to make sure that it has a brand name and brand image. The first step in branding is choosing a name for your craft business, designing a logo and making sure that you use them for all the office stationery, bills, packaging and business signage.
Branding is an advanced field of study and there are lots of strategies that you can use. We would love to tell you all about that is beyond the scope of this particular post. We will discuss all that later.
Cost #2 – Completing the legalities
Starting a business even if it is a home-based business will need you to complete certain legal formalities. This is an extremely important aspect of starting any business.
Even if it sounds scary or seems like a lot of hard work, remember that you really need to do this. And it is not as difficult as you might think. This is where the help of a capable accountant and a business attorney comes in. They will take care of most of these issues for you.
Even if you want to tackle the legal processes yourself like registering your company, filing for a patent, copyright for your business and product etc., these legal formalities are going to incur certain charges and fee. Since completing these legal formalities for establishing a business is essential, so is the cost associated with it.
Cost #3 – Professional consultation with business attorney/account
These two people are pivotal consultants to your business. You must definitely set aside the finances to consult with them initially when setting up a business. They will tell you of all the rules and regulations that you need to follow. They will also tell you about taxation and how you should handle it.
A professional consultation is important to make sure that you are comply with all the government regulations including the taxation policies. If you are ready to hire their services, they will complete and handle all the formal business requirements such as registering a company name, filing for patents, copyright, setting up a billing and accounting system etc.
The degree and extent to which you consult these two professional depends on how you want to shape and grow your business. The more your business grows the more you will need these two.
Many businesses just use one of these professionals, either a business accountant or business lawyer. A business accountant is more than capable of handling most of the legal and the financial needs for your business.
Cost #4 – Business stationery
Do not go into business without ordering letterheads, visiting cards, stamps etc. for your business. Now that you have designed a name and logo for your business they are to be put on all your business stationery, packaging, visiting cards and your business signs. Your business stationery is once again a part of branding an image for your business. Therefore set aside the necessary funds to ease this need.
Cost #5 – Market-research
This is not a very large cost especially if you are starting a small home-based business. However it is something you should look into. You need to take the time to research the market you are operating in.
You need to find out things like existing competitors, existing prices, existing related products as well as the demand for your craft and service.
Market research is a great way to test your business idea before you commit yourself to fully.
Market research also provides invaluable information when it comes to handling the competition, devising marketing strategies and developing your craft or service to tap into a consumer demand.
One of the keys of expansion is good market-research.
This is not something that is a big cost if you are starting a small business and intend to do some looking around yourself. You can research businesses and the products by finding them out locally. You can then explore what they are selling, how much they are pricing the products at and what is their common marketing strategy. You can also do a lot of research online.
For example, you can look into the different online stores that are selling your line of product or service. In case you decide to hire a professional to do this job for you, you will be able to do more professional job like conducting surveys, focus groups, pre-testing product launch etc. Either way, market research is important so you should definitely set aside the necessary funds for this cost.
Cost #6 – Office equipment
You need certain essential equipment and furniture for your office to make sure that the business proceedings are efficient, organized and comfortable. Some of the essential business equipment are things like printers, computers, phones, proper lighting etc. Since you are likely to have many of these things already, this cost could be minimal.
Pay special attention to the budget you set aside for a work desk and an office chair, or any other kind of seating that you are going to use to work from. These are two things that we recommend you do not skimp on. Other essential office equipment includes filing cabinets, shelves, lamps etc.
Cost #7 – Purchases and supplies
You have to give funds for the first purchase of raw materials for manufacturing your crafts. Similarly if your craft business is about providing the service like custom sewing or custom woodworking you might need to invest in a new sewing machine and new woodworking tools.
Cost #8 – Marketing and advertising expenses
The number one method most home based business startups use to promote themselves is word of mouth. However we highly recommend that you put a marketing and advertising strategy in place, no matter how small.
Consecutively, you also set aside a marketing and advertising budget. Small things like posting a flyer in the right places can get you targeted customers for your business and cost you very little. Look into the locally popular mediums of publishing such as local newspapers, magazines etc.
Putting ads in local publications is often cheaper than national publications. It might also be more suited to your business if you will operate locally. Online marketing is extremely popular and effective. If you are willing to make a website and ship crafts to other locations, online marketing and advertising can work very well for you.
Remember, a lot of things to do in a small business start-up are ‘do-it-yourself’.
You just might have to start learning about creating Facebook pages and launching search campaigns online. As always great way to learn something is to read about it. Here are some of the books that we recommend.
Cost #9 – Backup capital
A business can quite commonly take time before it becomes profitable. Most businesses follow this pattern. However, the duration required for business to become profitable also has a lot to do with the cost of initial investment as well as running expenses. If you have a low start-up cost and low running expenses, you business could be making a profit right from the first few sales.
If you have gone ahead and started with a bang, with large investments in setup and workforce, you might of course have to wait longer till the business starts supporting itself. In such a case you need to put away a set amount of capital to make sure the running expenses of the business is met. You also need to think about your own income stream. You have to support yourself as well as your business. Figure that in your calculations of the back backup capital that you are going to need.