Estimate the costs of doing business
Every business is different and has its own specific cash needs, so there is no
universal method for estimating your startup costs. To determine how much
start-up capital you will need, estimate the costs of your business for the first
several months.
To begin, identify all the expenses that your business will incur during its start-up
phase. Some of these expenses will be one-time costs, such as the fee for incorporating
your business or the price of a sign for your building. Some will be ongoing, such
as the cost of utilities, inventory, insurance, etc.
When you identify these costs, decide whether they are essential to your business'
success. A realistic startup budget should only include those things that are necessary to start that business. Your expenses can be divided into two separate categories:
fixed and variable.
Fixed expenses
These expenses are constant and are usually not affected by production or inventory.
They include:
- Rent
- Utilities
- Administrative costs
- Insurance costs
Variable expenses
These are the costs directly associated with the sale of your product or service. They
include:
- Inventory
- Raw supplies for production
- Shipping and packaging costs
- Sales commissions
- Delivery or transport
The most effective way to calculate your startup costs is to use a worksheet (Excel
or other spreadsheet software) that lists all the categories of costs (both one-time
and ongoing) that you will need to estimate prior to starting your business.
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