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While every entrepreneur knows starting and running a business isn’t free, not all realize the variety (or breadth) of costs that come into play. That’s not surprising considering all that’s involved. If you’ve never been down the road to entrepreneurship before, you don’t know what you don’t know. But lack of experience doesn’t mean you can’t educate yourself so you’re better prepared for the small business journey.
To get you started, here’s a checklist with some of the costs entrepreneurs face when starting and operating their companies.
Fixed (indirect) costs are those that are not affected by the volume of products or services you make or sell. They might change over time due to other factors (like vendor pricing, economy, etc.), but they’re not tied directly to your level of production or amount of sales.
EXAMPLES OF FIXED COSTS INCLUDE:
- Rent or office mortgage
- Bookkeeping and accounting fees
- Legal fees
- Licenses and permits
- Utilities and phone
- Dues for memberships to professional organizations
- Office equipment leases
- Marketing and advertising
Variable (direct) costs are those that rise and fall as a direct result of your production and sales volumes. When production and sales increase, your costs increase. When production and sales decrease, your costs decrease.
EXAMPLES OF VARIABLE COSTS INCLUDE:
- Raw materials to make a product
- Packaging supplies
- Shipping expenses
- Hourly wages associated with making a product
- Sales commissions
Costs: A Major Consideration As You Explore The Feasibility Of Your Business Idea
As you’re determining the viability of your business idea, think carefully about the costs that will affect your company. Not devoting the time needed to determining costs can result in unwelcome surprises that could put your business model in jeopardy.
That may sound a bit overwhelming, but you don’t have to do it all alone. Consider asking for guidance from a SCORE mentor.
SCORE mentors can help you determine the fixed and variable costs your business will face. They can also help you identify how much you’ll have in startup costs to open your doors and ongoing operational and administrative expenses. Best of all, mentoring from SCORE is free of charge.
With over 6 locations in Maine you can easily find a SCORE mentor near you. SCORE can help with all aspects of starting and running a business. Mentors can meet with you face to face or over the phone, or via email.