( By Elton Mwangi)
New York City has an approximate of 220,000 businesses, 98 percent of which are small businesses. They offer employment to almost half of the NYC workforce. But just how much does it cost to run a small business in NYC?
First, let us define a small business. Generally, a small business is a corporation, sole proprietorship, or partnership that’s owned privately. Different counties and industries have different definitions for a small business as well.
For instance, a mining and manufacturing company with less than 500 employees is considered a small business. Other businesses are considered small if they have less than 100 employees. The average revenue of a business also determines whether it is small or large.
Remember that a small business can operate in more than one location. But when you choose to run a business in New York City, just how much will your expenditure be?
The High Cost of Living in New York
The cost of living in the city is higher than the national average. This presents two challenges.
The cost of doing business is high
Employee benefits are higher
First, finding affordable space for your office or company can be difficult. A great location in the city will cost at least 16,000 dollars every month. To break even, such a company will need to make sales of about 700,000 dollars annually.
Second, everything in New York City is expensive. From housing to groceries, healthcare, and transportation. This means that employees require a high salary. Besides, New York experienced a recent increase in minimum wages.
Now, small businesses in the city need to pay a minimum wage of 15 dollars every hour. Bookkeeping on such a budget can be complicated. As a result, a startup can end up charging more for its products and services.
This is not good news for any small business considering the highly competitive nature of the NYC business world. This brings us to our second point.
A Competitive Labor Market
It’s no secret that New York is a hub of economic activity. But this only means that many businesses are hungry for talented workers. Moreover, the unemployment rate in the state is low, measuring at 3.6 percent as of January this year.
With the competition for talented employees being significantly high, small businesses are being forced to create more attractive compensation packages. Enterprises are using employee benefits to attract, recruit, and then retain talented workers.
Ultimately, this means that a business needs to invest more resources in benefits and recruitment. In addition to the complicated regulations of starting and maintaining a business in New York, the price of owning a business only continues to increase.
The state of New York made a vast range of business regulations. While the intention was to support employees, the result was a need for more preparation from the business owner. This also meant that bookkeeping would need to consider the additional legal costs of starting a small business.
For instance, you might need significant legal counsel from the beginning. Legal counsel helps to ensure that your business vision is scalable and achievable. But this means you will incur more costs.
Additionally, New York businesses suffer nonstop oversight from government agencies. To keep up with the ever-changing business environment, you might need to keep your legal counsel on retainer.
Moreover, getting licenses for your business can be expensive and complicated. For example, the annual food license is 280 dollars for restaurants. There is an additional fee required from employees to manage paid family leave.
The more employees you have in your small business, the more paid family leave you will have to pay. Don’t forget the fines charged for small business incidences like putting the garbage out early or experiencing complications with renewing licenses through the mail.
And what about the New York taxes?
New York Taxes
Yes, taxes are a relative cost of doing business. But the tax code in New York can be confusing as much as it is costly. You can register your business as either an S Corp or as a Limited Liability Corporation (LLC).
S Corp is generally preferred for small businesses because they offer tax and legal advantages. But not in the city of New York. Here, the General Corporation Tax for S Corps is 8.85 percent. On the other hand, LLCs are subject to an unincorporated tax of 4 percent.
Additionally, LLCs require Social Security and Medicare taxes. So, whichever option you take, taxes will hit your bookkeeping hard. However, certain businesses can qualify for a reduced tax rate of 5.5 percent.
Nevertheless, the state of New York requires businesses to pay the highest base tax. These taxes sometimes force small businesses to opt for cheaper locations like Miami and New Orleans.
You should expect your small business expenditure to be high if you have chosen New York City as your base. First, the location has a high cost of living. Second, the labor market is very competitive. Third, New York has complicated business regulations, and lastly, the base taxes are high for small businesses.
But there is a reason why many people still choose to live and work in this beautiful city. If done correctly, your great business is sure to make it big. If you can make it here, you can make it anywhere else.