Calculating Startup Costs to Start a Business
There are many reasons why someone starts a business. Business ownership gives a sense of 'security' for the future, especially for the future of the family. Not a few people who create businesses to help secure their retirement or inheritance to their children.
Building a business is often aimed at long-term interests. Therefore, preparation in building a business must also be done with careful preparation. The preparation includes operational planning, resources, and also costs.
How much money is needed to start your business? Calculating startup costs for a business allows you to access funding programs, attract investors, and estimate when the company will reach a profit. Here's how to calculate startup costs when you start a business.
1. Calculate Your Business Startup Costs Before Running
One of the keys to a successful business is preparation. Before starting a business, you will have some bills to pay. Understanding your business expenses will help you get started successfully.
- Calculating business start-up costs will help to:
- Estimating profit
- Perform break even analysis or break even analysis
- Secure loan
- Attract investors
- Save money with tax breaks
2. Identify Your Initial Expenses
Most businesses fall into one of three categories, namely businesses that have brick-and-mortar stores, online businesses, and service provider businesses. You will face different start-up costs depending on the type of business.
There are general startup costs that you will probably incur regardless of the circumstances. Here is a list of some and be sure to add any special expenses from your business:
- Office space or building
- Equipment and supplies
- Communication
- Permissions
- Insurance
- Lawyers and accountants
- Inventory
- Employee salary
- Advertising and marketing
- Market research
- Printed marketing materials
- Create a website/website
3. Estimate How Much It Will Cost You
Once you have a list of expenses, you can estimate how much they actually cost. Some expenditures will have costs with a fixed amount, for example, expenditures related to licensing which tend to have clear costs and the information is open to all people.
You may have to estimate other costs that are less certain, such as employee salaries. Search the internet and discuss face-to-face with mentors, vendors, and service providers to see how much a business or company similar to yours costs.
4. Add Your Expenses for a Complete Financial Picture
Once you've identified your business expenses and how much they'll cost, you'll need to determine which expenses are one-time costs and monthly costs. Adding one-time and monthly fees can give you an idea of the amount of capital needed and the estimated needs.
A one-time fee is the initial outlay required to start a business. Purchasing major equipment, hiring a logo designer, and paying for licensing is usually considered a one-time fee as well.
Usually, the need for tax payments is also included in the upfront one-time fee. However, make sure to always look for accurate information to find out the next tax payment. This is important because everything related to information about tax deductions can save your business expenses.
Monthly expenses usually include things like salary, rent, and utility bills. At least, you calculate one year of monthly fees. However, it would be even better if the costs were calculated and prepared for a period of five years.
5. Use Initial Fee Calculation to Get Funding
Making a formal report about the estimated initial costs of the business or company that you are going to start is a wise decision. The formal report can be made in a clear and easy-to-understand format, especially for the party you are going to address in terms of funding.
Investors and lenders will compare the expected costs with the projected income, and determine the potential for your business or company to make a profit.
These steps can make your business or company better prepared for the possibilities that can happen in the future. It can be said that accounting has become a “business language” that can be understood through the Finance for Non-Finance Professional program.
Even if you don't have an accounting background, you can learn the basic concepts of profit, cash flow, and time value for money through practical exercises and simulations. The purpose of this training is expected to be able to make company leaders to focus more on achieving company goals, not only operational activities.