Starting something is often the hardest step, even if it is exciting. This applies to businesses as well, and as anyone with a background in small businesses or start-ups will know, you often need all the help you can get. By being tax-savvy, you may be able to provide your business with a leg-up in the beginning phases, by knowing what is tax deductible and what the available small business...
With the e-commerce sector’s annual turnover breaking records year on year, many budding business owners see creating their own, unique web store as a dream money making scheme. But many people get carried away by fantasies of cashing in on e-commerce’s ever-increasing turnover without giving enough thought to incurring costs. If, for example, the website operator doesn’t have the technical know-how required to install the correct applications or build the web store themselves, they must be prepared to invest in help from experts. So that you don’t run out of money halfway through your web project, we present the essential financial aspects of web stores that website operators should bear in mind when planning their finances.
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One-off expenditures: from start to finish
Before you start to build your web store, you’ll encounter a series of one-off costs. However, the expenditure can vary greatly depending on the business concept and level of input by the company’s own staff verses outsourcing. Business owners can save a great deal of money by taking on the responsibility for setting up the web store, providing they have the necessary know-how. Website operators therefore should keep the following points in mind when drawing up their budget:
- Register for a license: it’s usually mandatory for online businesses to apply for a business license before they can begin to trade online. However, these laws (and any incurring costs) vary from country to country and state to state. Check out our guide on business licenses for more information about the requirements and costs for businesses.
- Rights of use for content: selling products from outside sources and using the manufacturer’s images and texts usually leads to costs for usage rights.
- Text for static pages: if you want to enhance your website’s pages with unique text, you need to set aside money for professional content written by agencies or extend your staff to include copywriters.
- Design logo and official papers: it’s important to create a consistent logo to embellish your site and official documents (i.e. invoices). Employing a professional graphic designer can prove a worthy expenditure for this task.
- Set up your web store: costs can vary wildly during the set-up of a webstore. Depending on your method, the cost of implementing a site can span from a few hundred to tens of thousands of dollars. You first have to ask yourself whether you’d prefer to host your web store on your own server or with a provider – in either case, costs will emerge from the purchase of hardware or software. Then comes the question of shop software; open source solutions such as Magento can be used for free, but this requires heavy adjustments to the features of your web store. For that reason, fee-based shop software such as Shopware could be a better option for larger web stores. Whichever hosting option you choose, costs will inevitably occur when establishing your hosting and web store system (including web design), even if you consider renting a web store from your hosting provider.
- Legal advice: when it comes to terms and conditions, impressums, and returns policies, legal security is a fundamental building block of any web store that should not be disregarded. It’s recommended to get legal advice from a lawyer for good measure in order to avoid unnecessary disciplinary action.
Do not underestimate ongoing costs
Before you start making a profit, you need to depend on generously calculated reserve funds to keep yourself afloat as you continue to develop your project. It’s therefore crucial to include the running costs when allocating your web store’s start capital. These regular expenditures come from:
- Hosting: monthly costs will occur, regardless of whether you choose to host your web store yourself or through an external provider. The more traffic you generate, the more expensive the hosting. Further factors such as using a content delivery network (CDN), back-up solutions, or SSL certificates also contribute to regular expenditures.
- Bank fees and payment systems: in addition to a fixed monthly fee for your business account, monthly charges arise depending on the incoming and outgoing bookings, which vary from bank to bank. You’ll also encounter additional fees if you offer your customers different transaction methods such as payment by credit card or PayPal.
- Personal costs and insurance: you must be able to remunerate your staff. You also need to account for costs such as tax advice and bookkeeping, as well as certain kinds of insurance, including liability, contents insurance, and legal expense insurance.
- Warehouses and shipping: your goods should be the central focus of your web store. In order to build and maintain a good reputation among customers, you must therefore ensure that you have a well-stocked storage space that allows efficient delivery. If you also require specific packaging for your stock, you may also encounter additional costs there, as well as shipping fees for working in conjunction with shipping companies.
- Seal of approval: should you wish to own a trust seal from a provider like Verisign, you generally have to pay a monthly fee, the cost of which depends on your yearly turnover.
- Online marketing: whether you choose to take care of online marketing measures yourself, or outsource to an agency, you will encounter more ongoing charges. Advertising and search engine optimization are sustainable methods of marketing, but only when used over a long period.
Start right with a strong financial plan
To get your company off to a strong start financially, your financial plan should be based on the abovementioned one-time and ongoing expenditures. However, expenditures vary depending on factors such as your sector, location, and the size of your online store. Calculating your budget generously usually enables you to avoid getting off to a bumpy start. For additional security during your planning phase, you can make use of the many resources for acquiring venture capital, such as the US Small Business Administration, which works with the government in order to aid budding businesses. Once the stated grace period is over, you repay this loan in manageable chunks, giving you enough time to establish your online store on the market and lay a strong foundation for future success.