Expenses for a New Part-Time Professional Practice
If you are considering starting a new part-time professional practice (or have already taken the plunge), probably one of the top concerns that you have is whether you have enough money to carry you through from the first day of your new practice until the time comes when your revenues are exceeding your expenses.
As compared to other businesses, a part-time professional practice has a great advantage in that your start-up expenses (for items other than your salary) can be relatively low. Most part-time professionals simply use space within their own home as office space, use their own personal computers as their work computer, use their home internet as their office internet, etc. Additional expenses that are beyond these normal personal expenses would include items such as establishing a business website, paying for business cards, marketing expenses (flyers, social media marketing, etc), increased travel expenses due to attending marketing and client meetings, extra telephone charges if a separate business line is needed, etc.
There are other start-up expenses if you form an entity such as an LLC for your practice. This would include the legal costs for forming the entity, plus paying any related fees to your state government. You may also have to apply for a license for yourself and/or the new entity. You should also consider the cost of an accountant that is used for setting up the financial records for your business, establishing a system whereby the invoices that are generated and paid are fed into your accounting software. In the beginning, you could track these expenses by simply using an Excel worksheet, but at some point, you will likely have enough transactions that an accounting system would be a good investment. Of course, these financial records will form the basis of your federal and state tax filings, so it would be wise to have this figured out before too long. We recommend 6 steps to lay strong administrative foundations for your business.
You will also need a certain amount of money to act as a cushion for your business. Banks will want you to maintain a certain minimum balance in order to keep an account open with them. Look out for additional fees such as for writing checks, going below minimum balances, costs for accepting credit card payments, etc. Investigate how well the bank’s transaction records will integrate into your accounting software.
Certain professions also may have software that is needed depending on your practice. You will have to budget for the cost of getting licenses for this software. Some of these providers may have special deals in place for start-up entities, or lower prices if your usage will be lighter than a normal full-time practice. In short, it pays to ask or investigate to see. Also, be sure to check into whether there are associations for people in your line of work. Although there may be a fee to join the association, this fee may be offset by savings that you realize as a member of this organization. You might have a need for continuing education which should be included in your budget as well, but for which an association may provide discounted pricing.
You should also consider your insurance options. If you are running a business out of your home, you should consider talking with your homeowner’s insurer to see if your business operations would be covered (it probably isn’t). Also, some professions might necessitate a conversation with your auto insurer, especially if you are transporting people (like a real estate agent) or items (process server). Check with your auto insurer to be sure, and if they charge extra, it might be a good idea to shop around.
In addition, it is not easy or even economical to obtain health insurance on your own as a part-time professional. It may pay to investigate whether to go on Obamacare, or to get your coverage on a spouse’s policy. Health insurance is a very large expense so it makes sense to investigate this thoroughly before launching your part-time practice.
After all these costs are figured in, then you can start to think about how much income you will need in order to make this new company worthwhile. You will experience savings in some regards, in the form of reduced commuting time, possible savings in taxes as you write off business expenses to the extent they exceed your income, less expense in maintaining a business wardrobe, eating lunch out at restaurants instead of at home, etc. However, it will likely be your salary that acts as the cushion between making money in your part-time practice or dipping into your savings to keep the business afloat. Although the downside risk is real, especially during the start-up phase of the business, the upside is quite appealing because as the sole owner, you get to keep all of the after-tax profits from your business. The trick is to be able to have enough funds to cover your business and personal expenses until you reach the milestone of a consistently profitable business.