How much money does it take to start your small business? Calculate your small business start-up costs so you can apply for financing, attract investors, and estimate when you will make a profit.
Calculate Your Business Startup Costs Before Launch
The key to a successful business is preparation. Before your business opens, you will have bills to pay. Understanding your expenses will help you launch successfully.
- Calculating startup costs helps you:
- Estimated benefits
- Do a balance analysis
- Secure loans
- Attract investors
- Save money with tax deductions
Identify your startup expenses
Most businesses fall into one of three categories: brick and mortar businesses, online businesses, and service providers. You will face different startup expenses depending on the type of business.
There are common startup costs that you are likely to have no matter what. Review this list and be sure to add any other expenses that are unique to your business.
- Store front
- Equipment and furniture
- Computer
- Technical service
- Office space
- Equipment and supplies
- Communications
- Utilities
- Licenses and permits
- Insurance
- Lawyer and accountant
- Inventory
- Employee salaries
- Advertising and marketing
- Market research
- Printed marketing materials
- Create a website
Calculate how much your expenses will cost
Once you have your list of expenses, you can estimate how much they will actually cost you. This process will be different for each expense you have.
Some expenses will have well-defined costs – permits and licenses tend to have clear and published costs. You may have to estimate other less secure costs, such as employee salaries. Search online and speak directly with mentors, vendors, and service providers to see which similar companies pay for expenses.
Add up your expenses to get a complete financial picture
Once you’ve identified your business expenses and how much they will cost, you need to organize your expenses into one-time, monthly expenses.
One-time expenses are the initial costs required to start the business. Purchasing major equipment, hiring a logo designer, and paying permits, licenses, and fees are generally considered one-time expenses. Generally, you can deduct expenses at one time for tax purposes, which can save you money on the amount of taxes you owe. Make sure you keep track of your expenses and talk to your accountant when it comes time to file your taxes.
Monthly expenses typically include things like wages, rent, and utility bills. You’ll want to count at least one year of monthly expenses, but counting five years is ideal.
Add up your monthly and one-time expenses to get a good picture of how much capital you will need and when you will need it.
Use your startup cost calculations to get startup funds
It’s a good idea to create a formal report of your expected startup costs.
You want it in a clear and easy-to-understand format. Investors and lenders compare expected costs to projected income and determine your business’ potential for profit.