Try not to be surprised by these start-up costs

It may seem hard to believe, but applications for new businesses in Colorado continue to outpace previous years. In Grand and Jackson counties, those applications are on par, but not exceeding, past rates.

With these new business ventures waiting in the wings to get started, I want to educate people here a little bit on the hidden costs of getting started.

Business Insurance: I am gratified to report that for many of the entrepreneurs coming to me to start their businesses, they are generally aware that they will need insurance. But the details of insurance are important.

Yes, general liability is a good idea, along with professional liability and commercial auto and commercial property insurance. These need to be considered regardless of whether a business owns or rents the property in which they operate. Working out of home? There is home-based business insurance.

Is insurance really necessary? For some peace of mind, yes. But for many businesses, their clients and customers may want to know if the business they are working with is covered by insurance. For that reason, it’s good to have. Will insurance cover a business for all problems and issues? Probably not. But having insurance that covers some issues is better than none at all.

For businesses who have employees, workers’ compensation insurance is a must. It’s expensive but you don’t want to be without it.

It’s easy to forget that for many businesses, permits and licenses are critically important. They generally cost money and take time to acquire. Restaurants, bars and breweries, for example, must have state and local permits (and sometimes federal, too) before they can sell a drop. These can take time and can be a hassle.

There are even requirements for permits to be an incorporated business in Colorado, which isn’t expensive, but is a good idea.

New business owners will want to be aware of the possible ongoing costs of using certain software for bookkeeping, inventory, payroll and perhaps other specific functions. Anymore these days these programs are billed monthly. Just don’t forget that these software demands will likely require monthly payments that will affect cash flow, probably every single month or quarter.

Most of the clients we work with here in Grand County work for themselves. They should be aware of the obligation to pay self-employment taxes. That comes to 15.3% on net earnings, which is 12.4% for social security and 2.9% for Medicare.

For companies that have employees, that cost is split between the employee and the employer. The feds and the states may also have unemployment taxes that need to be factored into the cash picture as well.

Up-front operating funds are critical to the survival of almost all successful small businesses. This is money that an entrepreneur should have in the bank (or accessible through a loan) to cover operations for anywhere from three to six months. Six months is the best. Many people simply don’t accept that for the first few months of a new business, there just won’t be enough cash pouring in to cover running the business.

There are other unexpected costs to consider, such as grand opening fees, special training and certification for managers and employees and perhaps the extreme cost of health insurance and other benefits for staff. It’s a very competitive world out there for hiring right now and having good benefits can help.

Oh, and don’t forget that if a business is being purchased, a title search and debt search is critical. A new business owner usually does not want to inherit the past debts and tax obligations of the previous owner. Check that out carefully.

Yes, it costs money to start or acquire a business. But in the long run the payoffs are great if preparations and planning takes place before starting or re-starting a business.

Patrick Brower is the Enterprise Facilitator for the Grand Enterprise Initiative. He offers free and confidential business management coaching to anyone who wants to start or expand a business in Grand County. He can be reached by calling 970-531-0632 or at

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