What does it cost to start a business? It varies for every company, but having a guide you can depend on to estimate your startup costs can be immensely helpful. Here’s why.
A realistic estimate of startup costs can help you:
- Understand how much capital you need to raise to begin operations
- Secure loans
- Attract investors
- Estimate profits
- Understand how and when you’ll break even
- Find opportunities for tax deductions
- Spot opportunities for savings
Let’s dive into how to form your estimate.
How do I estimate my startup costs?
The challenge of estimating your startup costs is that you’ll need to be detailed and relatively accurate, but most of your estimate is a guess.
To be clear, your estimate is an informed guess backed by research of your industry, your market, and similar organizations, and it’s confirmed as you test your hunches. You’ll form your estimate through web searches and by making phone calls to a variety of organizations to understand your one-time costs, such as logo design, signage, and permits, and the ongoing costs you’ll need to begin paying and account for over time.
Let’s explore some of the costs you can expect to pay in each of those categories.
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One-time expenses can include:
- Down payments on a property
- Property improvements
- Permits and licenses
- Incorporation fees
- Marketing materials, including logos, your website, and ads
- Business plan services
Ongoing expenses can include:
- Commercial loan payments
- Insurance payments
- Repairs and maintenance
- Legal services
- Accounting services
- Advertising expenses
- Market research
There may also be essential assets to purchase to begin operations. For many businesses, these include:
- Miscellaneous technologies
- Inventory or raw materials
- Office or retail furniture
And, finally, you’ll need to account for the extra cash you should have on hand to begin operating your business. Some experts recommend keeping enough cash on hand to cover the first six to twelve months of operations. Others encourage new business owners to estimate the deficit their businesses will create over the first few months of operations and determine when they will break even. That information can help them put a plan in place to cover shortfalls. You can work with an accountant to form the best strategy for your business.
Would you like to connect with an accountant who can help you with this task? Check out some of our favorite firms:
How do I determine what each of these items will cost?
The only way to take on this step is to research costs.
Start by listing each of your upfront and ongoing expense items. Then, talk with vendors, service providers, and other business owners to determine how much you should set aside to cover them.
How should I tally my startup costs and expenses?
Many owners like to use a worksheet to input their startup expenses, startup assets, and long-term assets.
It’s easy to create a worksheet. SBA.gov offers this example worksheet that you can use as a guide for modeling your upfront business expenses.
Sites like LivePlan and IdeaBuddy also make the task simple, and the work you put into these programs can pay dividends when it’s time to raise capital. Here’s how they can help:
How can I cover my startup costs?
There are many ways you can raise the capital you need to cover your startup expenses. Read our article, Your Go-to Guide to Raising Capital for Your Small Business, to learn about bank loans, loans backed by the Small Business Administration (SBA), and other forms of financing that may work seamlessly with your objectives.
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