How much money will it take to start your new small business? Calculating the startup costs for your small business can be challenging. These numbers are essential to request funding to attract investors, and estimate a return on your investment. Here’s what you need to know.
Figure out your costs before you launch that new business.
The key to success in any business is preparation and good planning. Before you open the doors on your new business make sure you have done these things.
- Estimate profits
- Put together a breakeven analysis
- Secure a loan
- Attract investors
- Save money where you can
- Keep track of your tax deductions
Identify what your startup costs are
Most businesses fall into one of three major categories.
- Brick and Mortar Store
- Online Store
- Service-based business
Here are some of the common startup costs that you will most likely incur no matter what type of business you are.
- Office space
- Equipment and Supplies
- Communications
- Utilities
- Licenses and Permits
- Insurance
- Lawyer fees
- Accountant fees
- Inventory
- Employee payroll
- Advertising and marketing
- Market research
- Printed materials
- The website, Social media, PPC ads
Estimate what your costs might be
Once you have the list of expenses together, you’ll be able to estimate the cost to get up and running with your new business. Keep in mind that some expenses will have a definite cost and some may be harder to estimate. Talk to other business owners about starting up a business and get their advice on expenses.
Now add everything up for a final cost
Once you have that list completed and you know how much things will cost, start organizing them into one time expenses and monthly expenses.
One time expenses
One time expenses are typically the things that you will only need to buy once in the beginning years of your business. These items are buying major equipment, hiring a graphic designer for your brand colors, font, and logo. Hiring a web developer to create a stunning website that functions well and attracts customers. Typically you can deduct one-time expenses from your taxes, which can save you money on what you will owe Uncle Sam at the end of the year.
Monthly expenses typically include things like:
- Salaries
- Rent/mortgage
- Utilities
When calculating these, you’ll want to count at least one year of monthly expenses is great, but counting five years of expenses is ideal.
Now get your funding
It’s a good idea to create a formal report of your estimated startup costs. Make sure you format it, so it is clear and easy to understand. Investors or lenders at banks will want to compare expected costs to projected revenue to help determine if your business model is going to be profitable and assess the risk level.
Download a free startup cost calculator here from the SBA.