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The Cost of Owning a Business: Dealing with Unexpected Pitfalls

Image: The Cost of Owning a Business: Dealing with Unexpected Pitfalls

Anyone who has run a business knows the best-laid plans don’t always work out. Surviving and thriving amid the unpredictability is one of the most essential lessons for startups — especially during the first year of business, a time when companies make little to no profit at all.

Keep these things in mind when navigating the road ahead.

1. Save, Then Save More

If at all possible, plan on having one year’s worth of savings to live off of before embarking on a new, self-funded business venture. If your business will be funded by an investor, make sure you have that capital on hand before taking the plunge.

RELATED: Is Entrepreneurship Right for You?

2. Consider Unknown Factors

You need a solid budget in place that accounts for both the knowns and the unknowns. While you may have identified anticipated expenses like insurance and supplies, what you also need to do is plan for a rainy day. That means accounting for the fact that your computer might break, car repairs may become necessary or unexpected medical expenses may crop up that impact your overall cash flow. Then there’s the matter of clients and customers, who may have unexpected demands. Having a premeditated nest egg helps catch you when you fall.

3. Remember Quarterly Taxes, Licensing Fees and Surety Bonds

When you work for yourself, it’s tempting to see profits and income as just that. Before you get too excited, remember the matter of paying quarterly estimated taxes and possibly, payroll and income taxes as well. Couple that with the fact that you may be required to pay business license fees based on what you earn as well as industry regulations and/or local policies that relate to your profession.

If your business grows from a local operation to a national one, those fees increase exponentially. Depending on your market, you may be required to apply for bonds, required by industries to prevent unqualified professionals from accessing certain markets. The quote for bond coverage a business needs is further linked to the business owner or owners’ credit score(s).

RELATED: How Business Students Can Become Entrepreneurs

4. Consider Your Salary

One of your greatest expenses when running a business may well be your own salary. Your personal expenses need to be considered in addition to your business expenses so you can set aside funds to cover bills — even when the business isn’t bringing in the cash flow you though, and hoped, that it would.

5. Weigh Your Business Structure

If you operate as a sole proprietor, you and the business are linked. In other words, if you get sued, it affects you directly and profoundly. On the other hand, if you form a corporation, your financial liability is limited. You need to decide what business structure is right for you to provide the financial outcomes on which you’re planning.