One of the first things that you should do before starting a business is to list out the estimated start-up costs for your business. This is so that you can see the items you have to pay for, how much they cost, determine your fixed and variable costs, calculate the break-even point for profitability, help you create proforma income statements, and see whether or not you can actually make money.
Start up costs are those that you need to pay for before you make your first sale. So, an online business would definitely need a website, any paid email hosting, any other software, and any physical product (if you are selling goods). A service business may not require that much start up costs. If you are a dog walker, you can actually begin without spending any money. You may need a business license in your area though. If you are in the restaurant business, your start up costs are going to be pretty high. You need a restaurant building, seating, dishes, food, kitchen equipment, hiring and training employees, and much more items before you can even get your first sale.
Start up costs are going to vary for each business, industry and your local area. So these items listed below are not all inclusive. But the more closely you estimate your costs, the more realistic your budget will be, and the less likelihood that you will experience ‘unforeseen costs’. I’d like to assume that you will be less stressed but in reality it’s like you’ll be more prepared to start your business.
You can list the start up costs out on paper or in a spreadsheet, like Microsoft Excel or Google Documents.
- Computer equipment, Point-of-sale (POS)
- Legal, accounting, and professional services
- Advertising and Promotions
- Licenses and Permits
- Lease/ Rent payments for building space
- Salary and Wages
- Payroll Taxes
- Starting Inventory
- Business Insurance
- Cash for working capital
Once again, there may be more expenses for your specifc business that may not be listed but this is a good list to get you started.
As you know with all things in business, even after you think you have fully exhausted your list, be prepared to add 10% to 30% more in costs before you get started. There will be an increase in some costs or delays of some sort or something totally crazy that you have to pay for. Despite the best estimates, be prepared for a little more wiggle room with the cash.
Remember that you can always update your start up costs and proforma statements as you get real bids, actual costs, and other numbers besides your original guesses. After you have completed the start up costs, the next step is to work on financing your business. That is, getting money to actually start your business. Check out this blog post on the Top 10 Financing Sources for more information.
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