Estimating Startup Costs

October 3, 2012 in ,

If you are planning to launch a business venture, it is vitally important to know that you will have enough money to keep it afloat.

Every business is different, and has its own specific cash needs at different stages of development, so there is no universal method for estimating your startup costs. Some businesses can be started on a shoestring budget, while others may require considerable investment in inventory or equipment. Additional considerations may include the cost to acquire or renovate a building or the acquisition of long-term equipment.

To determine how much seed money you need to start, you must estimate the costs of doing business for at least the first several months. 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 costs, such as the cost of utilities, inventory, insurance, etc.

While identifying these costs, decide whether they are essential or optional. A realistic startup budget should only include those things that are necessary to start the business. These essential expenses can then be divided into two separate categories: fixed and variable. Fixed expenses include rent, utilities, administrative costs and insurance costs. Variable expenses include inventory, shipping and packaging costs, sales commissions, and other costs associated with the direct sale of a product or service. The most effective way to calculate your startup costs is to use a worksheet that lists the various categories of costs (both one-time and ongoing).

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