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How to Calculate Startup Costs for Small Business

How to Calculate Startup Costs for Small Business

How to Calculate Startup Costs for Small Business

Startup Cost Estimation for your small business

 

How to calculate startup costs for your small business? What is the estimated amount to start your small business? Determining the amount for your startup business will help you in better ways including attracting the customers, requesting funds, and estimate when you will turn all your investment into profits. To launch a successful startup business, you required perfect preparation. If you don’t have an exact idea, researching before you start will take you a long way.

 

What is the startup cost in business?

The startup cost is nothing but the amount required to spend when you start a new business. There are different types of startup businesses. Since every business is different from one another, the cost to start your small business will also vary based on your business. The startup cost of a bookstore will be different from the startup cost of stationery; starting a bakery business has a different requirement than starting a coffee shop business. But some of the expenses are common for most business types.

 

Estimate your small business startup cost before you launch

For a successful business person, you need strategic preparation. Before opening your door for your small business, you have bills to pay. Analyzing all your expenses, helps you to launch your startup successfully. Startup cost estimation will help you in,

  • Profit estimation
  • Secured loan
  • Save your money with a tax deduction
  • Attract your investors

Why calculate a startup cost for your business?

Similar to business planning, cost estimation is also an important roadmap. This helps you in avoiding unnecessary costs and risks in your path.

Not all businesses are the same

As we discussed above, every business is different. The business requirements are different from one another. There is no easy formula to estimate the business cost. But this does not mean, the startup cost cannot be calculated. You can estimate your startup cost with an accurate guess.

 

Common small business startup costs

1. The Business Plan

Business plans are important documents that outline the strategy and vision of a company and help businesses attract investment. They’re also a way to keep companies on track over the long term. One of the essential portions to start a business is the business plan.

2. Costs of Borrowing

A startup for any kind of business or small business needs a capital amount. You have two ways to satisfy your capital for your small business – Equity financing and debt financing.

  • Equity financing 

when startups raise equity finance, they give up part ownership to investors in exchange for cash. They do this because they are generally not able to cover the costs of starting a company through other means. But this cannot apply to all types of small businesses.

  • Debt Financing

Small business owners can use debt financing. Debt finance is a way of borrowing money that you repay with interest. It’s a small business loan. Just like car loans, home equity loans, or credit card debt, business loans require payments on top of the principal (the initial loan amount). It is important to be prepared for this cost when starting a business. Taking out a business loan is not a decision to be taken lightly. You need to consider how you will pay off the loan and when you might have to do so.

3. Technological Expenses

Small business technological costs include costs for information systems, websites, and may also include accounting software. If you’re starting a small business and you don’t intend to hire employees, you may be able to save money by outsourcing some functions to other companies. This will help you in a long way.

4. Supplies and Equipment

Every business needs basic equipment and supplies. Some of the business owners may have an idea to take the lease and the remaining may have an idea to buy the equipment and supplies. Though you have an amount to buy your required equipment, some other unavoidable costs may make you take the lease. Depending on the equipment, this may not be the right decision. Make a clear-cut idea for your small business equipment and supplies.

5. Permit Fees, License, and Insurance

Obtaining a business permit can mandate that you submit to various inspections and authorizations. Some businesses may have the mandatory for industry-specific permits while others have only basic licenses needs.

Having insurance will help protect from any arise of liabilities. Business insurance can protect your business assets, customers, and your employees including you.

6. Employee Salary Expenses:

The labor cost for your business planning plays a major role. Planning for your small business salaries, wages and their benefits is considerably more important. An underpaid employee will be less likely to put his or her heart into the job, will often quit without notice, and can even sabotage others.

 

Here are some of the common expenses lists for your small business

The first step is to divide your expenses into those that are one-time purchases and those that will be ongoing monthly payments. Some of the common expenses for your small business – one-time purchases and ongoing monthly payments lists are as follows

1. One-time expenses for your startup     

  1. Furniture for your office or business.
  2. Technology or automation machinery such as tablets, computers, or printers.
  3. Initial inventory.
  4. Down payment for your business office or store.
  5. Insurance, permits, and licenses.
  6. Unavoidable equipment such as Machinery, vehicles, cash registers, and so on.
  7. Signage
  8. Initial and basic office supplies.
  9. Initial and basic business cards.
  10. Required technology equipment.
  11. Incorporation fees.

2. Ongoing Expenses for your startup business 

  1. Credit or Loan payments
  2. Ongoing inventory
  3. Utilities such as internet, water, electricity, phone, gas and so on.
  4. Website – both hosting and maintenance services.
  5. Marketing your startup business
  6. Payroll and benefits for employees.
  7. Salaries for your employees.
  8. Legal or authorized services.
  9. Mortgage or rental payments.
  10. Ongoing supplies for your office such as pen, paper, etc.,
  11. Materials for marketing
  12. Accounting services.
  13. Business taxes.
  14. Legal Services.

List of fixed and variable costs for your startup business

 

Here follows some of the list fixed and variable costs for your startup business,

1. Fixed Expenses for your startup business

  1. Costs for administrative.
  2. Insurance.
  3. Mortgage or Lease.
  4. Utilities.

2. Variable Expenses for your startup business 

  1. Packaging
  2. Shipping
  3. Payroll
  4. Inventory

The Bottom Line

While planning for your small business, focus and calculate only on your essential cost by avoiding your optional product or service costs. Before starting your small startup business, carefully analyze your products/services/ideas, the cost you charge, and list your pain points. Once your startup business is established, structure your business, make an organized business plan, have a good marketing strategy for your new business.

How to Calculate Startup Costs for Small Business

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