Starting a new business can be an exciting and rewarding endeavor, but it can also be quite costly. There are many different types of expenses you'll need to consider when setting up your business. Planning ahead for these costs can help you to properly budget for your business's future. There are two main categories of expenses companies will incur: operating costs and overhead costs.

Operating Costs – Cost of Goods Sold

Cost of Goods Sold (COGS) are the costs directly incurred when producing and selling products or services. This includes things like raw materials, labor, and other direct expenses that are incurred in the process of producing your products or providing your services.

Depending on your industry (e.g., manufacturing or service industries) COGS will likely be your biggest expense. Accurately calculating this cost will be critical for your business. If you underestimate COGS, you may find that you're not making as much profit as you thought you would be. If you overestimate it, you may find that you're not pricing your products or services competitively enough, which could result in fewer sales and lower profits.

Options for Controlling COGS

There are a few different ways you can control your COGS and help ensure that your business is as profitable as possible. One of the most effective ways is to carefully negotiate prices with your suppliers. By getting the best possible prices on the materials and supplies you need, you can help keep your COGS as low as possible.

Another way to control your COGS is to be mindful of your production processes. Streamlining your production process and reducing waste can save money on materials and labor costs. For example, finding more efficient ways to use raw materials, or sourcing them at a lower cost.

Overhead Costs

In addition to COGS, are the many costs that you need to keep your business up and running. Overhead costs are not directly related to the manufacturing goods or providing a service but are nonetheless critical for day-to-day operations. Some of the most common overhead costs include:

• Marketing and advertising includes things like website development, social media advertising, and traditional marketing efforts like print and radio ads.
• Professional fees includes things like legal fees and accounting fees. Your business is likely to want the services of a professional when drafting contracts, structuring your business, soliciting investors, and filing taxes.
• Rent and utilities most businesses require a physical location. In addition to the cost of renting that space you will also need to plan for the utilities you will need when operating in that space: electricity, water, and internet are frequently separate expenses from rent.
• Equipment and supplies could include things like computers, printers, and other office equipment, as well as specialized tools and supplies for your industry.
• Insurance some examples include general liability insurance, property insurance, and worker's compensation insurance.

Options for Controlling Overhead Costs

The above costs are just the most common types of startup costs that you'll need to consider when you're starting a new business. Understanding the full scope of costs your business will need for its regular operations and finding ways to control them can help ensure that your business is as profitable as possible.