Estimating startup costs for a business
One of the most difficult tasks for any startup is financial planning—how much will your new business cost you? Where will you need to allocate your startup capital? How can you budget efficiently and avoid taking on debt?
Estimating startup costs for a new business is a very tricky endeavor and, if done incorrectly, can cause your business to fail before it even gets on its feet. It is crucial that every entrepreneur create a business startup cost worksheet so that he/she does not incur any surprise expenses. But where to begin? Where do business startup costs come from?
While businesses rack up different costs in different industries, there are six general types of expenses that all small business startups face as they get going:
Research is the first step in any startup venture. Before investing a penny in your business-to-be, you have to do extensive market research to make sure you are starting something lucrative. If you have the financial resources available for it, you can hire third party consultants to do the researching for you.
How much should market research cost, exactly? That is completely up to you. There are numerous ways to collect research on a market, from online surveys and phone calls to more economic, theoretical approaches. Divide your budget reasonably, and keep in mind that should a third-party solution seem attractive, there are three levels of market research that consultants will provide:
- Top-Level Reports— usually not exceeding $1,000, top-level reports offer a startup the most basic information about its industry. While not deeply detailed, it can relate how the industry has evolved into its modern state.
- Full-Market Reports— far more comprehensive than top-level reports, full-market studies are useful for projecting the future trends of a startup’s industry. Complete with metrics, technological trends and a full explanation of how a specific industry works, the full-market report helps startup owners hit the ground running. The only problem is that it usually costs around $5,000.
- Product Detail Market Reports— if you are swimming in startup capital ($15,000+ just to devote to research, alone), then by all means, give a detail market report a shot! Rather than simply take a look at an industry, these reports check out how a product or sub-industrial entity is faring in the economy.
Again, if you don’t have room in your budget for outsourced research, don’t worry about it. Most startups do not. It can be done in-house, too. At any rate it is important to factor in the potential costs that come with market research.
Legal Fees, Licensure and Insurance
This field of costs is by far the most variant from business to business, and it will be a key part of your startup budget. There is a good chance that you will need to pay legal fees as you attain the proper registrations, trademarks, legal structures, etc. Keep in mind that different industries require different types of permits and licenses, with some costing startups much more than others. Moreover, you’ll need to get insurance plans for all of your future assets, like office space, inventory and more.
Supply and Equipment
From office equipment to inventory, your company, regardless of industry, needs to put some money down for supplies. This section often comprises the majority of a typical business’s startup costs. In order to save as much money as possible, it may be helpful to lease or rent necessary equipment. Lastly, don’t shrug off the price of office supplies—pens, paper, stationary and business cards all count in your total startup costs as a small business.
Payroll and Training
You probably aren’t going in to your new business as a one-man show. You will need a capable staff to help you get your startup off the ground, and that staff will need training and wages. All of those expenditures add up and comprise a significant total of your startup budget. Also, you may need to take a couple of courses or attain licensing to be a fully capable business owner. The training that you go through also needs to be counted while you add up your startup costs.
Website and Pre-Launch Marketing
Your startup must have a website—it is a requisite tool of every business in the modern economy. If you are a technophile and can design your own website, that’s great. But more than likely, you are not an expert at web design and you will need to outsource that job to a tech company. While it may seem expensive to do so, it may save you in the long run. Allocating those responsibilities to a third party company can free you up to defray other startup costs.
Preparing a startup marketing budget is a good idea, too. Whether you pay for ads on Google and Facebook or go a more traditional route (like an ad in the local paper), a prudent startup company owner will invest in spreading the word of his/her new business.
Your small business venture will probably not be fully funded out of pocket. Unless you are a savant when it comes to crowdfunding, you’ll need to turn to a third party or a lender to fund your first year or two. This will end up adding to the cost of starting your project, though some methods are more economically feasible than others.
Making a Startup Budget Template
After you have investigated and pinpointed where your costs will come from, it is time to make a startup costs worksheet—perhaps in an Excel document or some other spreadsheet software. Keeping a close record of exactly how much you spend is crucial for submitting accurate tax statements (and thereby getting the best returns) and also for responsible planning for your business’s next step. Luckily for the modern entrepreneur, there are a number of online tools that can help you organize your costs:
- The Wall Street Journal has a very popular business starting costs calculator. It offers a comprehensive way to add up your total costs, from startup expenses and startup assets to recurring costs. It is user friendly and detailed, so if you aren’t sure how to count certain parts of your overhead expenses, there are descriptions to point you in the right direction so that your bookkeeping is as fastidious as possible.
- There are several premade Microsoft Excel spreadsheets for startup business owners. Excel will do the startup math for you and you’ll be able to save your work and come back to it later, should you not be able to conduct the calculations in one setting. Also, if you have the Microsoft Office package that is cloud-based, you can take these templates on the go.
It is often expensive to start your own company—don’t get bogged down by unnecessary expenses. If you need help along the way with financing your venture and you don’t want to be charged borrowing costs, take a look at how invoice factoring can provide financial assistance to startup companies.