Surety bonds and other budget-busting start-up costs
Entrepreneurs know they have to develop realistic budgets when starting a new business. Unfortunately, doing so isn’t always easy because hidden costs are a natural part of starting a business. Small business owners usually don’t have much leeway for extraneous costs, so they must prepare for all potential start-up costs. By setting aside enough funds to cover following three hidden costs, you’ll be well on your way to managing a realistic budget for your new small business.
Surety bonds are often the first hidden budget buster because business owners typically have to purchase a bond before they can apply for a business license. For example, the California Department of Motor Vehicles requires auto dealers to purchase $50,000 worth of surety bond insurance before they can get an auto dealer license. When dealers qualify for the standard market, they usually pay a 1 to 5% rate. This means a $500 to $2,500 premium, which isn’t too expensive. However small business owners with credit scores below 700 should expect to pay higher rates for their bonds. Those who qualify for the nonstandard surety market could pay rates that rage from 10 to 20% for the same bond, which means premiums that could cost anywhere from $5,000 to $10,000.
Most surety providers require clients to pay the full surety bond premium upfront. If a business owner cannot pay for the premium, then he or she will not be able to purchase the bond. Without the required surety bond, a business owner cannot apply for a license. Furthermore, surety bonds are typically issued for one or two-year terms, so the business owner will have to pay a new premium when the existing bond expires. As such, business owners should always account for surety bond costs when outlining start-up budgets.
If you plan to employ more than five employees who need reliable access to the Internet, you’re probably going to pay for a significant Internet package. Failing to maintain adequate bandwidth for your entire office could result in multiple Internet outages a day. If you run a business that relies on constant communication with clients or colleagues via e-mail, such outages cost you and your employees time, money and productivity.
Contact every internet provider in your area to determine which company will provide the bandwidth you need for the best price. And don’t forget that your small business’s Internet usage will increase with every new employee you hire. This means you might need a significant increase in bandwidth within a short amount of time, and you’ll need to have the business finances to pay for it.
At first you might not think that office supplies will play a critical role in your budget. However, office supply costs go beyond your typical need for pens and paper, which, admittedly, don’t have costs that will run your company into the ground. Of course your office supply budget will depend on the type of enterprise you run. At the bare minimum, you should be prepared to set aside enough money to pay for the following office supplies on a monthly basis:
- printer ink
- toilet paper
You might not consider electricity and water to be traditional office supplies, but your employees will use them on a daily basis. Even small business owners should buy office supplies such as toilet paper in bulk, as doing so saves you money on products you’ll never have enough of. All in all, these costs can add up much more quickly than you might think.
Underestimating start-up costs could get you into a bad financial situation later on. Be sure to allocate some money for an emergency fund in case you do forget to budget for something important. Setting a realistic budget now can help you save time, money and headaches in the future.
Danielle Rodabaugh is the chief editor for SuretyBonds.com, a surety bond insurance provider that issues bonds to help business entrepreneurs get their enterprises up-and-running as soon as possible. As a part of its educational outreach program, SuretyBonds.com provides informational articles to help entrepreneurs understand the legal implications related to bonding and business start-ups.