8 Business Startup Costs for Independent Professionals

Starting your own business is challenging, but the more you prepare, the higher your likelihood of success will be. There’s a lot to consider when you go out on your own, from determining the services you’ll offer to how you’ll incorporate your business, where you’ll work, and how you’ll find clients.

Here’s an overview of eight key startup costs to keep in mind. If you’re planning to go independent, reviewing each of these can help you understand what it will take to get your business up and running smoothly.

1. Insurance

As a business owner, the legal and financial well-being of your company is your responsibility. If legal or financial problems come up that impact your business, that means they will impact you directly as well. That’s why it’s so important to protect your company against the risk of liability losses. Most clients will require certain insurance, but staying on top of it from the start will give you peace of mind and provide your company with solid protection.

The types of insurance you need will depend on your industry, company size, and clients. Common insurances include general liability, errors and omissions, and home-based business insurance.

2. Licenses and Permits

When you start your business, you must obtain the right permits and licenses. Much like insurance, these will depend on your industry and where your business is located. State licensing and permits will vary depending on where your business is located, and if your company is involved in any activity that is supervised or regulated by a federal agency you may need federal licenses as well. The cost of licensing and permitting varies, so it’s worth checking out ahead of time.

3. Office Space

One of the biggest perks of working for yourself is that you get to choose where your work gets done. There are many options to consider based on how you work and your individual budget. For some, a home office might be ideal if you have a dedicated space and are confident you can manage your time and be productive. While a home office might be your first inclination, keep in mind that you’ll likely need to invest in office equipment and supplies to create a functional workspace.

Other options include coworking spaces, renting a private office building, renting hourly spaces, or working from public spaces. Each of these options comes with different costs, so if you’re not sure where to start, make a list of pros and cons for each one and see what will work best for your individual needs.

4. Equipment and Supplies

Once you decide where you’ll be working from, consider the cost of any additional equipment and supplies you’ll need. Do you need a new laptop, an extra monitor, a filing cabinet, a printer, or a comfortable chair for your home office? Consider non-physical needs as well such as a professional website. Do you feel capable of creating your own website, or is that something you’d rather pay a professional to do for you? Consider which areas of your business are worth investing in upfront and where you can hold off to save money until later.

5. Advertising and Marketing

Marketing and advertising are one area where you can save big initially. If much of your marketing can be done online through your website and social media, you shouldn’t have to invest much upfront. However, it’s worth laying out a plan for how you want to market your services. While social media sites may be free to use, marketing efforts will take a considerable amount of your time—and time is money! Having a plan in place helps you feel more confident that your time and effort will pay off.

6. Time Tracking, Invoicing, and Collections

Time tracking, invoicing, and collections can be easily overlooked when you are first starting out. But, having a process to accurately track and bill time is a very important part of your job. Clients will want to know how you’re spending billable hours, so having a clear billing process is essential. A structured approach to invoicing will streamline payment collection and keep billing efficient and transparent. Options here include using mobile apps or DIY account management software, working with an accountant or bookkeeping service, or working with a business management service to assist with customized invoices and online payment records. 

7. Taxes

One of the biggest adjustments in working as an independent contractor is managing how you pay your taxes. The majority of independent contractors are considered to be self-employed and are subject to paying self-employment tax in addition to income tax. However, this can vary depending on how your business is structured. It is highly advisable to consult an accountant to ensure you don’t overlook small details, and accurately manage your records, paperwork, and payments.

8. Contracts

Contracts will quickly become another important part of your job. Contracts provide legal protection and a written record of what you and your client agree to. Online resources are available to help you create and edit your own contracts, or you can work with an attorney to help create or review standard contracts and forms.

By now, it’s clear that running your own business comes with plenty of back-office tasks. While these may not be the most exciting parts of going independent, they’re essential for staying compliant and building a successful business.