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4 Myths About Startup Costs

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Even a lemonade stand costs more than you’d expect. Sure, lemons are cheap, but then you’ve got ice, signage, cups, pitchers and the risk of a rainy day. Now take these unexpected costs and apply it to an adult-sized startup. According to CNN Money, a great number of entrepreneurs underestimate startup costs. To make sure you build a business plan with both eyes open, avoid these four common myths about startup costs.

4 Myths About Startup Costs

“It’s not personal – it’s just business”
A vast majority of small businesses are incredibly personal—both emotionally and financially. According to a recent Bank of America survey, 57 percent of small business owners regularly give up free time to get their business off the ground. Startup costs are a time-related as well. As for money matters, many small business owners’ startup loans are tied to their personal finances. Unless you have had a business line of credit and a DUNS number for a while, business financing will likely be tied to your personal credit. In search of a loan, many small business hopefuls put their homes up for collateral. Finally, come April, hordes of small business owners file personal income taxes rather than corporate taxes.

Marketing makes money without costing any
Social media sites such as Twitter and Facebook may seem like inexpensive—possibly even free—methods for marketing, but don’t be misled into scrimping in this department. (After all, social media could even help you optimize collections.) Small businesses are particularly in need of exposure. Publicity brings customers, and customers bring much-needed sales and revenue. In a study on the toughest challenges for new enterprises, most businesses reported slow sales as their foremost obstacle. Entrepreneur Magazine reports that rule of thumb for marketing value is 5 percent of projected annual revenue, but small businesses should adapt their budget according to the scope of their reach—whether local, national or international.

Taxes only spell trouble
Taxes can definitely cost your small business some funds, but they can also be an opportunity to save. For example, as part of the Small Business Jobs Act, small businesses are free and clear of capital gains taxes on key investments. Tax savings can also help you find new employees, which can be a boon for small businesses. In addition to tax credits for hiring new people, you may also receive a break for starting retirement or insurance plans. These measures can help you attract valuable talent. Whether new employees or just to help control your startup costs, pay close attention to your taxes—you never know where you might save.

Go big or go home
When you first start out, you’ll have a lot of funds at your disposal. The first impulse may be to rent that dream office or top-of-the-line computers. These fancy digs may excite you now, but spending big bucks is not sustainable in the long run. Make every effort to stretch your startup funds as far as possible. Create a comprehensive cash flow calendar, so you can estimate how much you can actually afford to spend and carefully monitor your startup costs. You might not be able to buy the gold-plated cappuccino machine, but you are much better off drinking instant coffee if it means keeping your business afloat.

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