Home > Business, Money Matters > Calculating Start Up Costs

Calculating Start Up Costs

Every new business needs money when starting up. For the majority of businesses, equipment will need to be bought, the workplace established and marketing costs met – all before the first sale is made. Then once you’re trading, you’ll need cash to pay the bills and keep the business going.

Estimating your Start Up Costs for your business is a challenge. Nearly everyone who has ever started a business has underestimated the costs, and then faced the danger of running with inadequate capital reserves.  The key to avoiding this pitfall is to adopt a rigorous approach to your research and planning. Most business people gloss over this stage and move on with a false sense of security. If you have to operate with inadequate cash this may bring your business to a sudden halt.

It’s wise to have sufficient capital to cover projected expenses for at least six months. Customers may delay in making payments and your business may not be breaking even, so have enough capital to keep the ship afloat for at least six months.

BEGIN BY ESTIMATING EXPENSES.  What will it cost you to get your business up and running?  The key to accuracy here is attention to detail. Leave no stone unturned. For each category of expense, draw up a list of everything you will need to purchase. This will include both tangible assets (for example, equipment, inventory) and services (for example, insurance).

CONTINGENCIES – Add a reserve for contingencies. In business you cannot predict everything. Keep some money aside for incidental costs that you have not planned for.

WORKING CAPITAL – You cannot open with an empty bank account. You need a cash cushion to meet expenses while the business gets going.

YOUR OWN NEEDS: Work out how much it will you need to live on. A new business does not often produce spare cash to spend on yourself. 

Including all this information in your business plan demonstrates that you have thought carefully about your proposed business idea, which in itself shows commitment.                                                                            

For an example of start up costs

Startup Expenses      
Buildings/real estate (if buying)    $  
Leasehold improvements (if renting)    $  
Capital equipment    $                     
Location/administration expenses    $              
Opening inventory    $             
Advertising/promotional expenses    $            
Other expenses    $            
Contingency fund    $              
Working capital    $                    
 TOTAL START UP EXPENSES    $  
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Categories: Business, Money Matters
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