Business startup costs that shock new owners |
| By Carole Moore • Bankrate.com |
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Every year thousands of perfectly intelligent Americans jump into new business ventures without doing all their homework.
Oh sure, they've tested the market and created a business plan. They've lined up a lawyer and accountant, purchased equipment and set up
a Web site. But even though they may think they've covered all the bases, surprise expenses pop up in the most unusual places.
Consider the odds: A whopping 56 percent of new employer businesses disappeared by their fourth year, according to SCORE,
a nonprofit entrepreneurial education association that analyzed a group of small-business studies.
It's enough to give aspiring entrepreneurs pause.
Bankrate asked small-business owners about the unforeseen costs that threw them off their game. Then we asked experts for
strategies on how to avoid or minimize these unexpected expenses.
Learn how to head off nasty financial shocks that can derail your dreams.
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| The costly things nobody tells you about |
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1. Your business runs on an expensive commodity
Fred retired to open his dream business: a personal concierge service. He operates out of his home, saving on office expenses -- that's in his favor. But the business, which offers everything from personalized grocery shopping to ferrying the kids to soccer practice,
is losing money faster than a politician forgets a promise.
The reason? Fred launched shortly before gasoline prices started rising. Not only does the gas he uses keep him from making
a profit, but would-be clients are cutting back on luxuries -- like Fred's services. And to keep his business afloat, Fred maxed out his
credit cards and went more than $10,000 in debt.
While it's true Fred couldn't control the cost of fuel, all the signs of rising gasoline prices were present when he opened.
Blinded by the excitement of being his own boss, Fred simply refused to take a realistic look at his prospects of success. He also invested
heavily in business equipment, such as a new computer, fax machine, copiers and supplies, as well as marketing materials. Fred's failure to
see the viability of his business venture before making the leap led to a nasty surprise.
Expert advice: Julie Lenzer Kirk, who teaches entrepreneurship at the University of Maryland and
is the author of "The ParentPreneur Edge: What Parenting Teaches About Building a Successful Business," says you can avoid Fred's fate by
saving a minimum of three months' worth of personal and business expenses.
"Regardless of the business, it generally takes longer to make money than most entrepreneurs think," Kirk says.
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