5 Unexpected Small Business Expenses You Could Encounter

Starting a small business is a huge undertaking — there are so many things to think about and plan for. If you’re about to pursue your big dreams by opening a small business, it’s crucial to have a realistic idea of all of the costs associated with starting and running a business. 

From legal fees to technology costs, these hidden expenses can quickly add up and leave you scrambling for a solution. Fortunately, the team at Stearns Bank put together a list of five common unexpected expenses so you can be better prepared when it comes time to launch. 

1. Incorporation, Legal, and Insurance Fees

One of the very first expenses you can expect when starting a small business is incorporation. Incorporation fees are the costs associated with registering your business and setting up your legal structure. These fees vary depending on the type of business you’re establishing, but they’re essential for every company. Here are some of the common costs associated with incorporation: 

• State fees — Most states require a fee to file articles of incorporation or organization, which usually ranges from $100 to $300. 
• Registered agent fees — Many states require businesses to have a registered agent, which is a designated person or entity that can receive legal documents on behalf of the business. The typical fee for a registered agent runs anywhere from $50 to $300 per year. 
• Attorney fees — Navigating the legal landscape when starting a business can be tricky territory. If you plan to rely on professional guidance from an attorney, expect to pay a fee for their services. This can range from a few hundred dollars to several thousand, all depending on the structure of your business. 

Once your business is established, you will want to protect it with insurance. General liability insurance will protect your business and assets from financial loss, costing an average of $400 to $750 per year. While the fee varies depending on your exact business structure, it pales in comparison to the price for peace of mind. 

2. Technology Costs

In this digital age, technology is one of the most important investments for any small business. Setting up a computer network, phone, and customer relationship management system (CRM) can add up quickly and cost your business a pretty penny. Here are a few common technology expenses you may want to calculate into the budget: 

• Hardware — Most businesses rely on hardware, such as laptops, monitors, cameras, headsets, photocopiers, printers, and telephone systems. While the cost of the hardware will depend on the type and quality of equipment needed, most businesses spend $500 to $5,000 per year on the hardware alone. 
• Website development and hosting — Chances are you will need to develop and host a website to promote your small business’s products or services. On average, you can expect to pay an upfront cost of $200 to build a website and around $50 per month to maintain it. This does not include the cost of domain registration and ongoing maintenance, however.
• Cybersecurity — Cybersecurity measures protect your business from cyber threats like hacking and data breaches with firewalls, antivirus software, and data recovery systems. On average, small to medium size businesses spend around 10% of their annual budget on cybersecurity.

Depending on the type of business you are starting, you may also want to budget for additional items like internet, telecommunications, mobile device plans, and even payment processing systems. Overall, the cost of these fees can add up quickly, especially if your business requires a lot of specialized hardware and software. That’s why it’s important to budget for these expenses after researching the most cost-effective solution for your specific needs. 

3. Location Expenses 

If you’re planning to launch a brick-and-mortar small business, location will be critical to its success.  The location can impact everything from visibility and foot traffic to tax costs. It’s easy to overlook startup costs associated with renting and maintaining a space for your business, so keep an eye out for these potential expenses: 

• Rent — The cost of renting a physical space for your business will vary depending on the location and size of the spot. You also may need to put down a security deposit, which is typically equivalent to one- or two-months’ rent. 
• Property taxes —You may be required to pay property taxes on the physical space you’re owning or renting, depending on the location. Generally, property taxes are specific to the location you select, and calculated by the local tax authority based on the property’s assessed value. 
• Utilities — Don’t forget about the utility fees, like electricity and water, when selecting a location for your small business. Just like rent and taxes, utility fees vary greatly by location; however, the average small business spends anywhere from $200 to $1,150 per month.
• Maintenance and repairs — In order to keep your business in tip-top shape, you probably need to budget for regular maintenance and repairs, which can incur costs. The average maintenance cost for office facilities ranges from $1.63 per square foot to $2.23 per square foot.

It’s important to research and budget appropriately before signing on the dotted line to secure a location for your small business. As mentioned before, location-specific expenses vary greatly, so be sure that you’re aware of all the potential fees associated with your future brick-and-mortar business. 

4. Inventory and Supply Costs

From stationery and mail supplies to office furniture and computers, the operational costs associated with setting up your office can add up quickly. Budgeting enough money for basic items like writing utensils, paperclips, and printer paper is essential to help keep your operations running smoothly. However, if you are planning to start a small business that sells physical inventory, you may want to budget for these common hard-hitters:

• Cost of goods sold (COGS) — First and foremost, budget for the cost of products and materials being sold by the business. This includes the raw cost of materials, labor, and overhead expenses that go into producing and providing the services. You can calculate the COGS by taking the value of inventory at the beginning of the period being studied, adding the cost of any new inventory purchased over the period, and subtracting the value of inventory held at the end of the period. 
• Packaging and shipping — If your business needs to ship products to customers, there will be costs associated with the packaging materials, shipping, and handling fees. 
• Inventory management — Not only will you maybe need to cover the cost of storing, tracking, and managing inventory, but you might need to invest in inventory management software including barcode scanners and other tools. The average cost of an inventory management system lies around $150 per month. 
• Vendor and supplier costs — If you plan to rely on suppliers and vendors for raw materials or finished products, be sure to budget for the cost of these goods as well as the shipping or handling fees associated with them.  

To start a successful small business, make sure you have enough capital to cover the costs of acquiring, storing, and shipping the inventory you need to succeed.

5. Employee-Related Expenses 

If you are hoping to grow and expand your small business, you always need to be on the hunt for top talent. Employee costs can be one of the biggest expenses for starting a small business, but it’s necessary if you want the resources to reach those lofty goals. Here are a few of the most common employee-related expenses to plan for in the future: 

• Salaries — In order to attract and retain top talent, a business will need to offer employees competitive wages or salaries. At the moment, the average salary in the United States is $28.01 per hour, or $58,260 annually. 
• Benefits — Offering employees benefits, like health insurance, retirement plans, and paid time off can be costly; however, it’s an essential part of attracting employees. In 2023, the average employee benefit cost per private industry employee is $11.42 per hour. 
• Recruiting and hiring — Businesses may need to pay for recruiter fees, job postings, and other expenses associated with connecting to new employees. According to the Society for Human Resource Management (SHRM), the average cost per hire was nearly $4,700. 

While the bulleted list above includes some of the most common employee-related expenses, it doesn’t even begin to scratch the surface of all the additional fees you may need to include in your budget. For example, if you want to maintain a proactive and skilled team, you might need to invest in training and development programs that allow employees to learn new skills or stay up-to-date on industry trends. Workers’ compensation and payroll taxes are two other costly expenses that you will need to build into the budget. 

Business Banking Backed by High-Touch Service

If you’re about to begin the journey of opening a small business, you might be feeling overwhelmed — but you don’t have to do it alone. At your fingertips are experts to provide you with invaluable business guidance, secure online banking services, and easy-to-understand account options. When you partner with Stearns Bank, everything you need to be successful is available in one place.

“Stearns Bank is convenient for me and they give me really great personal service,” he said. “I know everybody at the Sarasota branch by name and they always greet me with a smile. If I have a problem, I can trust them. I would recommend Stearns Bank to anyone who owns a small business.” - Andrejs Spalvins, Stearns Bank customer and owner of The Fish Bowl LLC.