After listening to hundreds of startup success stories, young entrepreneurs might think that building a billion-dollar enterprise is not such a hard thing to do. Do you have a great business idea? Good for you, but thatās just a foundation, and you still need to build strong business structures that will support your future empire.
At the very beginning of your entrepreneurship career, youāll discover many hidden costs that lurk behind every startup launch. In this article, Iāll present you with some of these costs and explain why they are crucial for your companyās good start.
Surety bonds
If you decide to launch any type of service business, youāll probably need to buy a license surety bond. This bond protects your future customers from any type of damages that might be associated with your business. You can buy these bonds from surety companies.
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They will assess your credit history, as well as your corporate and private assets and provide you with a unique bond price that usually ranges from one to several hundred dollars (depending on the bondās value and the business industry youāre in).
Although most entrepreneurs view these bonds as an unwanted necessity or a necessary step in the licensing process, surety bonds can benefit your future company in many different ways. They protect your reputation and can quickly solve any type of customer damage claim.
Business insurance
A surety bond will protect your customers, but you also need a guarantee that your company wonāt suffer from damages caused by mishaps, natural disasters, fraudulent acts and customer and employee lawsuits. Your business operation will be safe with buying these business insurance policies:
- Professional liability insurance (errors and omissions)- protects you from negligence claims due to harm that resulted from employee mistakes and failures to perform;
- Property insurance- covers your office building and all the equipment, inventory and furniture thatās stored inside. It protects your companyās assets in an event of a fire, natural disaster, flooding, and theft.
- Workersā compensation insurance- is an obligatory insurance policy, which covers medical treatment and workersā benefits in case of work-related injuries.
- Product liability insurance- protects your business operation from damages caused by product failures.
- Business interruption insurance- protects you from losses caused by unintentional business interruption.
Taxes
Profits are usually very limited in the first few years of business development. During this time most entrepreneurs reinvest their profits in order to spread their business operation, but they still need to pay taxes. Even the sole proprietors need to pay 8% of their gross-income to Uncle Sam, while limited liability companies (LLC) pay $800 per year, even if they donāt gain any revenue.
Licensing fees
Buying a license surety bond is just one step towards getting a business license. Youāll also need to pay a license fee to the state licensing authority. The price usually depends on: physical location of your enterprise, federal and state industry regulations and the type of structure you choose to incorporate.
When it comes to licensing, many entrepreneurs change their residence in order to incorporate their business in a city/county/state that charges lower licensing fees.
Professional help
Incorporating a new company requires you to fill out tons of forms and make difficult choices that will have a huge impact on your business development. That is why you need to hire an attorney, who will help you with paperwork and give you a bit of useful advice if you get stuck in a dead-end.
Attorney fees are not cheap, but thatās the only way to securely incorporate your business, protect your future company and avoid legal and taxation issues.
Although launching a startup is not as easy as some āhappy go luckyā entrepreneurs like to point out, it is still a much better career alternative to 9 to 5 jobs.
Maybe your companyās profits wonāt match your corporate salary at the beginning of your entrepreneurship career, but if you invest some time and effort into your business operation, youāll quickly turn your startup into a highly-profitable enterprise.