If you own a small business, or are getting ready to start one, you probably already know about many of the expenses you’ll face. They range from state-imposed license costs to ongoing charges for all sorts of services that new owners need to survive. The best place to begin, with just about any business-related endeavor, is to learn the lingo. What are the differences between fees, charges, costs, expenses, taxes, and similar demands on your funds.
Next, we’ll take a closer look at the most common costs and fees you are likely to face when you plan to open your doors. Some are one-time affairs, but others will be with you for as long as you’re selling goods and services. The last step is putting everything together and figuring out how to team up with a provider of merchant solutions so you can not only minimize all your expenses but keep track of everything in a reasonable, efficient manner.
What are Fees?
Merchants have to pay many types of fees. The standard definition of that term includes two key concepts: paying a fee means giving an individual, company, or government entity money in exchange for a service. Sometimes the service is ongoing and sometimes it’s not.
There are actually four main kinds of fees and costs. Note that most will show up on accounting statements as one or another type of “expense.” However, when you dig down and start to examine each one, you’ll see that they tend to fall into four separate categories.
- Fees: If you pay to have consumer credit cards processed, you’re paying a fee for the service. Many expenses have the word “fee” attached to them to indicate that they are a direct cost of a particular service.
- One-time Costs: An example of a one-time cost would be a state-imposed charge to obtain a business license. You only pay it once, but it’s still an expense.
- Ongoing Costs: Utilities are probably the perfect example of an ongoing cost. As long as your entity exists, there’s be some form of utility charges.
- Taxes: Taxes are their own category, both legally and in terms of how accountants handle them. Don’t assume that federal taxes are the only item here. Businesses pay all sorts of taxes to states, cities, counties, and other entities. The key feature of a tax is that it is charged as a percentage of your income in a specific category.
15 Costs and Fees Small Business Owners Should Be Prepared To Pay
Expect to confront most of the expense categories listed below. Depending where you do business, there might be a few more or not as many fees, charges, and expenses. But, these are the main ones that most companies have to deal with.
- Legal: Even if you don’t think you need legal help, it’s smart to pay for fee-based services to make sure all your licenses and official documents are in order. When your company gets larger, consider paying for ongoing legal assistance.
- Marketing and Advertising: M&A includes what you pay to get your name out there, whether online, via TV, on the radio, on billboards, or any other way.
- Accounting-Related: Unless you have an in-house CPA who can deal with the huge chore of keeping detailed financial records, you’ll need to pay someone to do at least part of the job. This is a good example of an ongoing expense because most businesses pay an annual or monthly fee to an accounting firm to take care of bookkeeping, tax preparation, and similar tasks.
- Fees for Credit Card Processing: On average, business owners pay about 2.9 percent on credit card purchases made by their customers. This category represents one of the largest but also most variable expense items on a company’s books.
- Taxes: As noted above, business entities typically pay tax on their income to the federal government as well as the state government. Cities, counties, and municipalities often impose their own taxes.
- Rent Even if you work out of a cubicle in your home’s spare bedroom, you’ll incur what accountants call “rent.” For many startup owners who do work from their homes, “rent” is baked into their personal mortgage. The IRS lets you back out the amount in a special way, via a “home-office deduction” on your business tax return.
If you are wise enough to opt for the simplified version of the deduction, you’ll get to slice $5 per square foot of dedicated, in-home office space from your company’s income for the year or period. There’s a maximum of $1,500 on the deduction until further notice. If your working space is not at home, you can deduct the full amount of rent you pay to a landlord or any owner of the premises where you operate your company. - Payroll Processing: One of the most common expenses for startups is payroll processing. Typically done on an outsource basis, owners pay a monthly fee to have checks printed or direct-deposited into employees’ accounts.
- Various Licenses: If you’re lucky, you’ll only need one business license. However, some service providers and sellers of certain kinds of goods need additional licenses.
- Power and Utilities: No matter where you do business, expect to pay for power and other utilities (sometimes garbage collection and water is included in this category).
- ESF, Equipment, Supplies, and Furniture: Even if you maintain an in-home office, you’ll need to spend some money on furniture, standard supplies, computers, and related items.
- Inventory: If you sell goods, it costs money to buy them and store them. Inventory can be a major expense for companies whose main source of income is from selling physical products like furniture, appliances, or tech items.
- Contractor/Consulting: Many startup owners hire outside pros to advise them on various subjects, from long-term planning to writing a business plan. Contractor and consultants’ fees range widely depending on what you need help with.
- Payroll/Wages: This is different from payroll processing. It’s simply the amount of money you pay others to work for your company, as employees or independent contractors.
- Website-Related Expenses: To establish and maintain an online presence, your company will need to pay at least a modest fee for website hosting and related services.
- Insurance: Don’t neglect to get insurance coverage for your goods, any real estate used in the business, and liability coverage in case someone sues you.
Keeping Track of Everything
Note that the 15 costs listed above are just a representative collection of what average businesses and startups have to shell out just to get going and to remain in operation. Not every entity will have to pay the exact same list of expenses. In other words, your mileage may vary. You could end up with more or fewer items on your own list. That’s why it makes sense to partner with a provider of merchant solutions.
At Metro Payment Technologies, we work with companies of all sizes who need to sort out their payment processing, cash flow, and e-commerce arrangements. Feel free to phone us at 1-800-771-3719 with any questions you have about the challenges your company is facing.
Chances are, we have a product or service under our roof that can make your life easier and help you cut down on redundant fees, charges, and expenses. Plus, we’ll help you keep tabs on everything. Don’t let the hectic pace and long list of operational fees and expenses get you down. For more about what we do and how we can simplify your company’s daily tasks, check out our website.