The following is a post from Brabble director of business development Patrick Mackaronis. Patrick is a thought leader and subject matter expert in the fields of entrepreneurship and startups, and has been a self-starting businessman for years.
Starting a successful new business will always come with certain costs attached, especially if the prospective new business owner wants to sell tangible goods they have made or plan to purchase at wholesale prices and re-sell for a profit.
Selling One’s Own Products and Services
If the new business owner wishes to sell products they have made themselves, there will be the cost of the items involved and any special equipment required for the running of the business. The good news is that in many cases the entrepreneur has probably been working on these items as a hobby for years and will have gradually built up equipment and supplies.
In most cases, the entrepreneur should also be able to run the business out of their own home, in which case they can derive some tax benefits in the form of deductions for the percentage of the home which is used solely for the purpose of running the business, such as a spare room or garage.
They will probably also already have a computer and some sort of software to help with recordkeeping and accounting. Setting up a website should take more time than money, as will online marketing of the new business. In terms of effective market research, from having worked in the field for some time, they should have a good idea of who their market is and how much they can realistically sell their products for.
The main issue in starting a business such as this will be leveraging time and effort. With only 24 hours in a day and many people working a regular job and dealing with family issues, their time to produce their goods will be limited. Similarly, anyone offering a service such as dog-walking, babysitting, in-home day care and so on will also find that they have only so many hours in the day to work and need to balance all of their time demands plus continue to market their business effectively. Therefore, any price charged needs to reflect the value of time, a fair rate and a livable wage unless the new business owner intends it to remain more of a hobby than a stream of income.
Selling Wholesale Products
For those wishing to sell wholesale, there will be the price of the products to be sold and a location in which the work is to be conducted. This could be a small office, showroom or a stall at the local market, all of which will entail paying rent of some sort, which will be tax deductible. If the new business owner plans to sell online, there will also be picking packing and shipping costs and the cost of the packaging itself, such as boxes, cartons and bubble wrap. Remember to keep all receipts for tax purposes.
These start up costs can add up very quickly, but one way to avoid this is to buy on consignment, only paying for the products once they are sold. Business owners can also get a line of credit, or pay within a certain time frame, such as 30, 60 or 90 days.
The new business should have a website and its own bank account and business identity as some form of corporation in order to protect the owner in terms of tax considerations and legal issues. There are far more deductions permitted to a corporation such as a Limited Liability Corporation (LLC) or an S Corporation or C Corporation than to an individual. They will probably want to set up a completely separate computing and accounting system for this type of business, which will also add to the start-up costs. Finally, they might have to consider hiring staff to help them run this type of business.