You may be thinking "Starting a business is expensive, I don't want to do it." However, the cost may not be that much compared to the benefits. Let's break it down!
First things first: the cost of starting a business can vary widely depending on the type of business, its scale, location, industry, and your specific plans. Some businesses can be started with very little initial investment, while others require substantial up front capital.
However, generally speaking, if you are a solo business owner and you want to form a business, you can expect to incur these expenses to comply with legal requirements:
1. Entity Formation Costs
There are fees associated with forming your business entity. The fees depend on the state where the business is located and the type of entity you are forming. A filing fee can cost anywhere from $50 to $500.
In some cases, you may decide to wait to form an entity and run your business as a Sole Proprietorship. It all depends on your specific circumstances.
⚠️ Recurring Annual Fees: Once you've formed an entity with the state, you will need to keep this entity "in good standing" by filing an annual report, which involves a fee.
2. Business Permits and Licenses
State and local governments impose certain requirements primarily to protect citizens from improperly-run businesses and to collect revenue from businesses operating within their jurisdiction. This can be in the form of taxes (like sales tax) or fees (like a business license that requires an annual fee). These fees depend on your location, the type of business you are running, and sometimes the volume of your business.
⚠️ Product-specific requirements: If you're selling a regulated product, you'll need to make sure you comply with state and federal regulations which may involve additional permits or registrations.
3. Legal Costs
Your business formation costs will be higher if you hire an attorney or a legal service as opposed to doing it all yourself. However, this may be very well worth it. There are requirements with formations that you may not even be aware of, and a legal professional can help you get it all taken care of.
⚠️ Commercial Contracts: Additionally, if you are involved in commercial dealings, such as arrangements with vendors or leasing a space, it may be prudent to have a legal professional review or prepare the contracts for these arrangements. This avoids misunderstandings and conflicts down the line as well-drafted contracts provide and structure for the parties to the arrangement. Read more about contracts here.
⚠️ Intellectual Property Protection: Hiring a legal professional to assist with the trademark registration or other process to safeguard your business's intellectual property is advisable. In addition, the application process itself involves fees. For example, the fee for filing a trademark application may be upwards of $250 per class.
I hope this helps demystify the business formation process a bit more!
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