Business startup costs that shock new owners |
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4. Minimum-use fees can subtract from the bottom line
Associate Publisher Scott Anderson of Ceres Press says he was unpleasantly surprised to find that not using his private shipping service
enough has its consequences. "(The service) has a minimum charge that we must pay every week," Anderson says. That fee's due even if they
don't ship anything. Although the amount -- $8 to $17 a week -- may not seem like much, as Anderson points out, it adds up.
Expert advice: Read the fine print and find services geared toward small businesses. Stacy Robin,
business consultant and managing partner of The Degania Group, says to check out associations and credit card benefits, which sometimes
offer member discounts on many expenses, including shipping. And realistically weigh your options: Robin says that unless you're shipping
on a regular basis, a contract probably isn't necessary.
5. Too much physical inventory can spell fiscal disaster
Jimmy Beans Wool founder Laura Zander says the yarn company saw a real growth spurt in 2005. That was great, but because wholesalers price
wool in bags of 10 and Jimmy Beans sells it by the ball, the company was inventory heavy.
"What we didn't realize is that we had to pay taxes on that increase in inventory (minus the growth)," Zander says. She adds
that expanding the inventory at the same rate as revenue would have solved the problem. Instead, the company accrued so much in inventory
taxes that "we basically had to pay almost all of our salary that year back into taxes."
Expert advice: Zander's dilemma isn't uncommon. Kirk offers this advice: "If your business is
seasonal, look at how you have your fiscal year defined. If you typically build up your inventory toward the end of the calendar year,
consider moving your fiscal year end to a time when your inventories are lower, like September. That way you're not penalized for a
needed buildup."
Stacy Robin says that some real-time inventory management systems enable business owners to order goods at the same rate
as they're sold. "(That helps to) limit the gap between the time you lay out the cost for the product until the time you get paid," she says.
6. Getting your goods into retail outlets isn't all profit
If you want your handbags at Saks or your chutney in Trader Joe's, you'll have to do more than sell the company reps. Prepping a product for
retail entails numerous expenses you probably haven't thought about, like establishing UPC or bar codes. Stacy Dallman, founder of Nookums,
which manufactures a line of baby pacifiers, says it cost $750 to establish UPC codes so her items could be sold in the U.S. and Canada.
Dallman says: "Every variation of your product needs its own (bar code)."
Expert advice: Some initial expenses are unavoidable. This is one of them, but you can control
additional costs by investing in software that prints the barcodes instead of having to contract out for the work, says Kirk.
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