You may not realize all the costs—large and small—that go into business operations. Here are 20 common small business expenses, plus 8 ways to keep them in check.
Starting a business from scratch can be a dream come true. But that dream can quickly become a nightmare if you only view your business through rose-colored glasses and ignore the startup costs and ongoing costs of running one.
You may not even realize you need to budget for certain expenses until you’re well into your first few months. This is especially true for one-time fixed costs (e.g., trademark fees) or costs that require renewals (e.g., business licenses). Not to mention all the variable costs associated with keeping a business up and running monthly.
If you fail to plan for these startup costs and recurring costs from a cash flow perspective, you’ll likely be short of money to cover them. That’s why it’s crucial to factor in all these expenses, including the often overlooked ones.
The following are 20 common costs of running a business, grouped according to one-time expenses, recurring expenses, and variable costs. Plus, 8 strategies to keep expenses in check.
Table of Contents
The majority of your one-time expenses will be your business startup costs.
1. Equipment Expenses
Equipment is one of the most common business startup costs. It is generally a one-time cost for most business owners though there are monthly payments should you decide to lease your equipment instead.
Equipment needs will vary between small businesses, with some owners having smaller equipment costs than others.
For instance, if you’re a writer, you’ll likely only need a laptop and maybe a printer. But if you’re a videographer, you’ll have more complex equipment needs, including a computer, cameras and lenses, lighting, and a tripod. So, carefully consider your equipment needs and budget accordingly.
2. Incorporation Fees
Incorporation is the process of forming a company or corporate entity. You can identify a corporation with the words Inc. or LLC (limited liability company) at the end of a business’s name. Incorporating your small business has definite advantages, like tax benefits and shielding your personal assets from liability.
But it also comes at a cost. According to Entrepreneur magazine, expect to pay $500–$1,000 for lawyer’s fees in addition to your jurisdiction’s filing costs and periodic mandatory filings.
3. Trademark, Copyright, or Patent Registration Fees
A trademark protects a business’s brand name and logo, a copyright protects an artist’s original work, and a patent protects inventions like new technologies.
The U.S. Patent and Trademark Office (USPTO) has a detailed primer on the benefits of federal trademark registration and the costs.
For information on copyrights, registering your work, and the fees, visit the U.S. Copyright Office. For information on patents, registering your invention, and the fees, visit the USPTO’s patent page.
4. Legal Fees
You’ll need to pay lawyer’s fees for drafting specific contracts like a founder’s agreement. A founder’s agreement is critical if you’re going into a partnership with a friend or family member, where treating the arrangement casually can backfire.
Hiring a lawyer to draft a founder agreement will set expectations. This can set you back hundreds of dollars, depending on the complexity of your situation.
Your recurring expenses are usually operating costs that you pay for on an ongoing basis, such as rent or software subscriptions.
5. Insurance Premiums
Insurance is your safety net, protecting you from financial loss when things go wrong. The common types of insurance include:
- General liability insurance, which protects you from third-party claims for bodily or property damage. Your industry’s risk plays a significant role in the cost here.
- Worker’s compensation insurance, which provides benefits and wage replacement provided to employees injured on the job. The cost will depend on business size, location, and overall risk.
- Commercial vehicle insurance on vehicles used for business purposes. Coverage is provided for vehicle damage and bodily injuries. The costs vary based on driving history, location of work, and vehicle type.
- Errors and omissions insurance or professional liability insurance, which is specialized insurance that covers you against lawsuits where clients sue for mistakes or omissions in your services that led to financial loss. Costs vary based on factors like industry, location, size, and how good your quality control procedures are.
Many business owners fail to set aside extra money to pay taxes and may struggle come tax time. As a general rule, set aside 30% of your income after deductions for taxes. In the U.S., depending on your situation and business structure, you may be required to file quarterly estimated taxes. Also, your tax rate may be higher as a small business owner than as an employee due to self-employment tax.
However, you can offset this with business tax write-offs or deductions.
7. Accounting and Bookkeeping Fees
The professional services of an accountant or bookkeeper can set you back thousands of dollars upfront but save you a lot of money and help reduce your tax bill over time.
While accountant and bookkeeper roles do overlap, there are differences. Accountants typically analyze and interpret financial data, whereas a bookkeeper records and classifies financial transactions.
8. Software and Tech Expenses
Technology can help you manage and grow your business, so it’s a cost to consider early on. Costs include:
- Accounting software to record, track, and manage finances and expenses. The right software will also give your accountant or bookkeeper access to the system so they can support your business.
- Hosting fees. You’ll likely want to create a website as part of your promotion efforts. As part of this marketing cost, you’ll need to pay for hosting (monthly or annually) and yearly domain renewal.
- Payroll software to pay employees and handle payroll taxes if you have a team. You can either manage this yourself or get an accountant to handle it.
9. Office or Coworking Space
Many freelancers and small business owners work from home in the early stages of their businesses. If this is you, odds are, over time, you may outgrow your home office and eventually need to rent office space.
Depending on your location and the space needed, expect to pay hundreds of dollars (or more) each month. If your team is small, renting can be a significant cost. You may be better off signing up and paying for a temporary office or coworking space where your team can collaborate in an open-office environment.
10. Payroll Expenses
You’ll need to factor in payroll costs if you plan to hire an employee or freelancer to support growth. Not to mention, the monthly costs for a full-time employee are more than just the salary. They include employment taxes, insurance premiums, commissions, bonuses, and other benefits, like health insurance, paid time off, and retirement savings plans.
11. Business Licenses
Most states in the U.S. will require some form of business license when starting and registering a business. These licenses will often need to be renewed annually.
The exact requirements will vary by state, municipality, and industry. Consider the HVAC industry. In the U.S., some states require HVAC technicians to pass exams to become licensed and certified. Certification is obligatory in Massachusetts, Minnesota, and Arizona.
12. Membership Dues
Membership fees are another cost to consider if you’re planning to network. Joining your local Chamber of Commerce or Business Network International (BNI) group can help grow your business, but those membership fees aren’t cheap.
One networking mistake business owners make is joining groups with professionals precisely like them. Commiserating and swapping stories from the trenches can be helpful, but you should also be present where your audience is, so you’re not networking in a vacuum.
13. Borrowing Costs on Business Loans
You may want to apply for a small business loan at some point to help grow your business. Small Business Administration (SBA) loans are an attractive option for small business owners due to their predictable monthly payments, low-interest rates, and various loan types on offer, such as SBA 7(a) loans, SBA 504 loans, and SBA microloans.
Just be sure to factor in the borrowing costs (interest payments), fully aware that defaulting on a small business loan can be costly.
Variable costs are recurring costs, too, but they change based on season, output, and other factors.
If you have office space, you’ll also have to budget for monthly utility costs like water, electricity, cable, and phone.
15. Office Supplies
A few boxes of pens or reams of printer paper may not seem like much, but the cost of office supplies can quickly add up. Try to maintain digital files whenever possible to avoid printing—it’s economically and environmentally smart! For instance, you can scan and upload your receipts from anywhere using online accounting software.
16. Business Credit Card Fees
If you accept credit card payments from clients, you’ll have to factor in the cost of credit card processing, also called interchange or surcharge fees. This is typically a per-transaction flat fee and a small percentage of each transaction. Depending on your state, you may decide to pass these fees along to your customers instead.
17. Travel Costs
You will need to factor in travel costs if you plan on visiting your customers directly, have lots of meetings out of the office, or run a business like a landscaping business that requires you to travel to the client for site visits and to do the actual work. Don’t forget about lodging and food!
18. Shipping Costs
Shipping is a cost to consider if you’re selling physical goods online. The actual costs will vary depending on the type of product, weight, courier, and the client’s location.
19. Inventory Shrinkage
Shrinkage—loss of goods due to damage, clerical errors, and so on—is also part and parcel of selling physical goods. Investing in a decent inventory management system can help reduce shrinkage.
20. Marketing Costs
You need strong marketing to attract clients. Every small business owner should create a website and have social media profiles. But depending on the nature of your new business, your marketing methods to get new business may include the following:
- Printing and distributing flyers
- Creating email and social campaigns
- Hiring a publicist to help create buzz
- Using Google Local Services ads
- Asking for referrals
8 Ways to Keep Your Expenses in Check
Now that you understand the expenses associated with starting and running a business, let’s look at how to keep them in check.
1. Stay on Top of Expenses
Staying on top of your business expenses involves tracking them. However, tracking can become a chore without the proper tools. Just imagine using spreadsheets to keep records manually and storing receipts physically. This can result in tax issues, delayed receivables, and other problems that remove you from running your business.
An expense tracking tool can take the pain out of capturing every expense, whether big or small. Just consider the expense and receipt tracking feature provided by FreshBooks. With it, you can:
- Take the pain out of logging expenses by connecting your bank account or business credit card and having your expenses automatically recorded daily
- Access all your information together in one place so you can see how much you’re spending, at a glance
- Easily assign tax-friendly business categories to prepare you for tax season
2. Prioritize Your Spending
Find what’s necessary for business growth and start there. For instance, you won’t have time to keep up with every industry organization or have a presence on every social media channel.
So, prioritize where you want to spend your money and energy. If you’re not getting a good return on investment for a particular expense, it might be time to cut the cord or look at ways to economize.
3. Consider DIY Tools
There are many DIY marketing tools for small businesses out there. You can set up a website using something like Squarespace or Wix, create a logo, set up email marketing, create a social media presence, and run ads, without paying for outside help. For example:
At some point, your business will grow, and you’ll need outside help in addition to these DIY tools. The good news is that you can hire professionals who can jump in and use your existing tech stack.
4. Say “No” to Office Space and Cost-Effectively Upgrade
Perhaps setting up your laptop in the corner of your living room no longer works for you. But if you can give your guest room or basement a makeover with the proper equipment to function like a home office, you may be able to put off renting space until later.
That said, you also don’t want to skimp on any expenses that will help keep your business on the legal straight and narrow. For instance, hire a lawyer who specializes in your situation rather than relying on Google for legal advice. Otherwise, this can get you into hot water and cost you more money in the long run.
5. Hire Contractors Over Employees
If you need to hire employees but don’t quite have the budget for someone full-time, consider hiring a subcontractor or freelancer to start. You won’t have to worry about employee expenses like office space and benefits while they lighten your workload and help you scale. You can always turn to an employee in the future as your situation changes.
6. Buy Second-Hand Equipment
Many small business owners spend money on used equipment—and with good reason. You can get some terrific second-hand deals if you’re patient and do your research. Some used equipment is practically new and often hugely discounted.
Just keep in mind that purchasing used equipment is a risk. There is a higher chance that it breaks or won’t have the same warranty as buying it new. In fact, it may not have a warranty at all. If it breaks, you’ll have to pay to fix it, and over the long term, you may spend more than buying something new from the start.
However, you can avoid these scenarios by buying from reputable dealers who’ve inspected the product. If you plan to buy from a private seller, see if you can test the product before you buy it and check for any scratches and blemishes. Even better, meet up with the seller and take a friend with deep knowledge of how the product works to examine it.
7. Reduce Payment Delays
Late payment is a common problem that affects almost all small businesses. It harms cash flow, which can affect your ability to operate your business. Just imagine being unable to pay specific monthly bills because you’re waiting for several client payments.
Strategies to avoid payment delays and get paid faster include:
- Invoicing on time using accounting software that makes it quick and easy to create and send an invoice
- Making it simple for clients to pay by offering multiple payment options
- Being clear on what the payment amount and terms are
- Being polite, e.g., Please pay your invoice within…”
- Following up on clients who are a day or two late in paying
8. Build a Budget—and Stick To It
A business budget provides an overview of your finances and shows your current business income and expense sources. Use it to evaluate where you stand, identify where to cut spending and grow your revenue, and land startup funding from investors to grow your business (investors will want to see income vs. expenses to get a sense of profits).
Create a budget by tallying all income sources, calculating fixed costs, determining variable expenses, and predicting one-time spending. Then, bring it all together by subtracting expenses from income to determine your total net income.
The Bottom Line on Business Expenses
Starting a business is undeniably exciting, but you can quickly run into snags if you ignore the business startup costs and expenses that go into operating a business.
Pay attention to and keep these expenses in check by tracking them using tools that make it easy, hiring contractors, reducing payment delays, and building a budget.
Do that, and you’ll significantly improve the odds of building a successful business.
This post was updated in September 2023.