What's involved in Business Start up Costs? Here's how to estimate the cost involved in starting your business
Estimating business startup cost for your business is important estimate to high and you might not get the money estimate to low and you'll run dry soon.
Estimates must be as accurate as possible!
Do you know how much it costs to start a business? There isn't any one right answer because every business is different and every business has its own cash needs.
Some businesses can be started with very little money, while other require a large investment of inventory or equipment.
That is why it is so important to know whether you will have enough money to get started on your new business venture.
Identify the Six Major business Start-Up Expenses
In order to know how much money you will need to start your new business, you must first identify all the initial expenses.
Some of these expenses will be a one-time cost, such as incorporation fees, building signage, or the purchase of a computer. Other expenses are ongoing, such as utilities and insurance.
Expenses for a business startup are found in six broad categories:
- Cost of sales – inventory, equipment, shipping, warehousing, etc
- Professional fees – attorneys, trademarks, copyrights, drafting agreements, etc
- Technology costs – computer hardware and software, peripherals such as printers and scanners, phones, website development, Internet access, etc
- Administrative costs – insurance, supplies, permits, packaging, utilities, etc
- Sales and marketing costs – stationary, marketing materials, advertising, PR, tradeshows, etc
- Wages and benefits – salaries, taxes, health insurance, workers comp, etc
As you look at these different costs, you will need to determine whether they are essential or optional.
For instance, you will have no choice when it comes to utilities and insurance, but you can decide to put a yearly contract for a web designer in the optional pile.
Realistic startup costs should only include those things that are truly necessary to start the business.
Once you know the essential expenses, you will have to group them into fixed or variable expenses.
Fixed expenses, also known as overhead, include things like rent, utilities, and insurance. Variable expenses relate to business sales and include such things as inventory, shipping costs, and sales commissions.
Once you've identified your costs, it is time to calculate what those costs will be.
A spreadsheet works best for estimating business startup cost
The best way to be thorough when calculating startup costs is to use a worksheet, workbook, or online calculator.
This will help you keep from forgetting important startup items. A good workbook will include things such as:
- Transportation
- Installation of fixtures
- Remodeling
- Signage
- Advertisements
- Website development
- Legal fees
- And more
You can find good worksheets at the Better Business Bureau and the Small Business Administration. You can also purchase small business software that will help you with this process.
Expert Tips
There are several things you can do when calculating your costs that will make you more likely to succeed. They are:
- Overestimate your expenses – you are likely to forget items. If you have overestimated in other areas, this will make up for those areas you neglected.
- Underestimate your income – in this way, you create a cushion for things such as a downturn in the economy or a slow start to your business.
- Add at least 15% to operating cost calculations – this will help take into account any unforeseen expenditure.
As you complete these worksheets and do your research, you will be able to estimate the costs of running your business. Above all, be realistic when calculating startup costs for your new business.
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