While typical business startup costs, such as formation, rent, inventory, and payroll, may be easy to calculate, unexpected expenses may catch business owners off-guard and blow up their budgets.
A common reason startups fail is “death by a thousand extra costs which cause drag on their business , and so they fail to reach a point of sustainable growth.”
Here are five frequently unanticipated costs you should consider when evaluating your startup costs.
1. Client Acquisition
As an entrepreneur, you can anticipate putting in long hours at all sorts of tasks, and it may be a while before you get settled. You’ll have doubters, skeptics, lapses, and contradictions. You’ll need to persuade people to become your clients or invest in your idea.
You’ll survive all of this far better if you are genuinely passionate about your enterprise idea. Being jobless isn’t a sufficient reason to start a business , but feeling driven to solve a situation is.
“It’s not just about forming an outstanding development that meets a clear need, but making sure that you reach the audience that wants to buy it,” Valentina says. “Getting to that point of astronomical adoption usually needs much originality along with some capital investment.”
You can maximize free or low-cost motorcars like social media profiles and email marketing, but you’re also going to need to test with various types of advertisement and marketing to find your optimal mix. And that takes funding, Valentina says.
2. Expertise and Recommendation
Expert counsel can be critical to a successful business launch and growth. “Many small businesses have failed due to poor operational management of accounting affairs,” Valentina says. “Having a good accountant to help advise on financial projections, cash flow analysis, and at the least review bookkeeping can be the difference between running out of money early or adjusting expenses to weather dips in the business .”
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Founders may underestimate the accounting, tax planning, legal, and consulting advice they need. However, the cost of fixing mistakes, paying more in taxes, or facing penalties for getting financial and legal matters wrong can cost far more.
3. Inventory Governance
If you have a business that produces or sells products, the costs of managing your inventory may be surprising, says Abir Syed, a certified public accountant, and business consultant.
“Many companies that sell physical goods don’t consider the impact of storage and warehousing costs,” he says. While you may factor in basic costs, if products or materials don’t move as quickly as you’d like—often the case for optimistic entrepreneurs—costs can increase well beyond expectations. Inventory that sits too long may become damaged, outdated, or otherwise lose value.
4. Brand Construction
Many startups also fail to understand the costs of building a unique and recognizable brand.
“A small investment to create a name and brand that make sense by aligning with the product and market strategy will go a long way toward decreasing the costs of market entry.”
This includes appropriately researching and testing the company name, brand identity, and product names. Taking shortcuts can lead to additional costs, especially if you face legal challenges or need to rename your business or products.
5. Client Service
Many would-be entrepreneurs pause for months or years, waiting for all the stars to align.
Excellent client service cultivates loyalty in your customers. But providing that benefit comes at a cost, Valentina says. “Consider the case of Zappos or Rackspace that differentiated based on client service and were able to capture market share quickly through word of mouth,” she adds.
Initially, you may be delivering customer service yourself. As your business expands, put systems in place, and budget for client service costs like returns, “make-goods,” and promotional pricing.
“As a startup coach, I typically recommend investing of both time and money to ensure that at the very least good documentation is in place, particularly onboarding, along with a system for fielding inbound support requests,” Valentina says.
Keeping startup costs under control requires careful planning and anticipation of your business needs. With good preparation, you’ll be set up for success.
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