Business & Management

How to Calculate Business Startup Costs

startup costs

You will need an accurate estimate when you write your business plan so that you can choose how to manage your funding and your expenses.
It can be difficult to accurately estimate your startup costs, but this guide will assist you to know how you can plan for your initial expenses.

Most Common Expenses

The first step is to list all the purchases you will have to make to start operations. Categorize your list into one-time purchases and ongoing payments, as both will contribute to your calculations.

These are the most frequent costs for both categories:
Ongoing Expenses

  •  Your Rent
  • Accounting and legal services
  • Insurance
  • Office supplies
  • Travel if your company needs it
  • Electric, gas, water, telephone and Internet services.
  • Payroll and advantages for staff
  • Credit or loan payments
  • Taxes

Initial Expenses

  • Incorporation Fees
  • Permit and license for your particular industry, such as city, county or government licenses
  • Office or store down payment
  • Initial supplies of office
  • Furniture for office or company
  • Required facilities such as money registers, equipment or cars
  • Appliances like computers, tablets, or printers

Fixed and Variable Business Costs

You will also have to determine the fixed costs and the variable of your expenses. You may schedule fixed expenses precisely, but your expenses will vary every time for variable expenses.

Examples of Fixed Costs:

  • Utilities
  • Administrative costs
  • Insurance
  • Lease or mortgage
  • Machine regular maintenance

Examples for Variable Costs:

  • Shipping
  • Payroll
  • Inventory

When you plan to get started, you just need to consider items that are essential to get started instead of optional items that you can invest in later if your company income helps to compensate for the costs.

How to Calculate Your Business Costs

Do a Research

It’s time to search after you have prepared a list of your expenditures. For a precise estimate, you have to estimate the costs of each item in your list.
You will want to minimize the amount of expenditures without sacrificing the value of the products on big tickets. This means your study will include the capacities of machinery, checks, maintenance costs and warranties.

You could estimate quite accurately your one-time expenses and your fixed ongoing expenses.

You may need to do additional studies and make wide assumptions for variable ongoing costs. For example, until you become operational you won’t understand what your ongoing inventory costs are but you can guarantee you have enough money to cover those expenses if you cushion them.

Total Expenses

You have to total your one-time costs so that you know exactly what it will cost to start the business, but that isn’t all. Also, in several months ‘ time, you have to make ongoing expenses more important.

While your company can cover these expenses when it is fully operational, it might take time to produce sufficient revenues to cover these costs, far less profit.

Covering Your Business

It is generally a smart idea to rely on business expenses to be covered for six to 12 months while your enterprise is growing. Whilst it is possible to reduce the cost for the upfront payment by contributing to sale growth and business revenues, calculations are generally more secure, on the assumption that your business can not contribute, as you will not be able to predict sales correctly until you are operational.

Some expenses can also grow as your business grows, such as marketing, inventory or payroll, so you want to add some additional cushion for growing needs.

See Also

How to write a business plan

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