Jan 04, 2020

5 Commonly Overlooked Startup Costs

Starting a business comes with unique expenses. Starting a construction company requires an investment in costly equipment. You can’t open a restaurant without a space or commercial kitchen appliances. Tech companies require software development and coders. In addition to these “known” expenses, there are additional costs that are commonly overlooked by startup founders. To avoid surprises, we’ve put together a list of commonly overlooked costs that every startup founder should consider. 

1. Transaction Fees

Technology has made it easier to process sales and payroll, but it’s also added to the cost of both. For every credit card transaction that you process, you will be charged a credit card transaction fee by the credit card company and a payment processing fee by your payment processor. Those combined payments could total as little as 4.54% ($454 for an annual credit card revenue of $10,000; $11,350 for an annual credit card revenue of $250,000) or as much as 7.93% ($793 for an annual credit card revenue of $10,000; $19,825 for an annual credit card revenue of $250,000).

These estimates are based on average ranges to give you an idea of what transaction fees may look like. It’s important to note that fees can vary, and these numbers are not a set predictor of what your transaction fees will be. Payment processing fees, especially, can vary. Many end up being higher than the original quotes. So when you’re selecting a payment processing company, make sure to do your research to avoid surprise fees later. 

2. Payroll Fees

Startups, like all businesses, have to contend with payroll fees. If your company grows past solo entrepreneur status, you will want to use a professional employer organization (PEO). PEOs handle a number of important duties, including processing payroll, calculating taxes (state, federal, and employment), and recording and calculating payroll deductions. In exchange for taking these complicated tasks off your hands, PEOs charge a processing fee that typically ranges between 2 and 10% of total payroll costs. 

3. Bookkeeping Software

Hit the ground running by keeping your accounting in order from day 1 with bookkeeping software. In the long run, keeping your books in order will prevent you from losing money (say, from double-paying an invoice) and make filing your taxes a relative breeze. Plus, it will be an asset when you seek funding. We’ve looked at the potential costs of bookkeeping software and accounting services to provide a framework of what these products might cost your startup. 

QuickBooks ranges from $15/month for a subscription designed for freelancers and climbs all the way up to $150/month for their most advanced accounting software. According to the company, their most popular option is “Plus,” a $70/month subscription. For a year, the total cost of the lowest subscription would total $180, and the highest tier would total $1,800. 

Looking to save money on your bookkeeping? Say hello to Sunrise. The platform, which (full disclosure) Lendio loves so much we bought the company, offers free accounting software. That means you can track expenses, generate invoices, and keep your P&L sharp without added overhead for your startup. 

If you dread bookkeeping, Sunrise offers an advanced option of accounting services. For $99/month, a “Starting” subscription provides a dedicated professional bookkeeper who will match up to 50 transactions in addition to providing bookkeeping support and a monthly closing of the books. Have more than 50 transactions each month? Sunrise offers additional price tiers. The “Growing” subscription at $299/month provides the same exceptional services for up to 200 transactions. Or the “Corporate” membership at $499/month with up to 500 transactions, may be the right fit for your startup. At the highest subscription, annual accounting services from Sunrise cost $5,988, a bargain compared to the $58,901 average base salary of an accountant, according to Glassdoor

4. Hiring a Stellar Team

If you want to take your business to the next level, you need a team you can trust to get it done. While many businesses budget for the cost of additional employee salaries, the cost of hiring can take startups by surprise. According to the Society for Human Resource Management, it takes an average of 42 days and $4,129 to hire a new employee. As you plan any hiring for 2020, avoid surprises by allowing for potential hiring expenses in your new-hire budget. 

5. Business Insurance

Business insurance protects a business owner from potential costs of property damage and liability claims. In addition to making sound financial sense, liability insurance may be essential for a business to acquire customers, depending on your industry. 

It’s difficult to provide an accurate estimate of your business insurance costs because of the variance in pricing. Factors like your business’s classification, type of goods and services sold, salary and employee totals, and business risks all contribute to business insurance pricing. According to Trusted Choice, insurance for a sole proprietorship might run you around $500/year, while a small consulting firm might spend closer to $3,000/year. These numbers can give you a starting idea of what to expect, though if you’re in a high-risk industry, those numbers can be higher. 

About the author

Mary Kate Miller
Mary Kate Miller
Mary Kate Miller is a writer based in Chicago, IL. She specializes in covering finance (personal and business), investing, and real estate. Her mission in life is to give readers the confidence and the knowledge needed to grow their wealth by making financial topics more accessible. When she's not writing about topics like business loans, you can find her playing armchair financial advisor to the Real Housewives.

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