Starting your own business involves spending a lot of money. It’s a good idea to calculate the costs even before the startup is launched, so that you can properly prepare for them. You should add up all the expenses to understand your full financial picture. How to calculate startup costs?
Startup costs – table of contents:
- Startup costs
- Startup costs – how to calculate them?
- Cost estimation
- One-time costs vs. ongoing costs
- Financial cushion
Calculating the startup’s initial costs allows the entrepreneur to launch the business safely and avoid unpleasant surprises. However, this is a difficult task as it is easy to get lost in the numbers. In order not to get into trouble with liquidity, it is worth planning your income and expenses from the very beginning, so that you can focus on the development of the company and be able to get the necessary funds from investors in the future.
Knowing how much it will cost you to launch a startup makes planning much less complicated. It also becomes easier to apply for funding from various institutions (such as the Small Business Administration loan) and to find investors.
Startup costs – how to calculate them?
Calculating the startup costs requires analyzing various aspects of such an organization. In the end, of course, everything must be added up. However, in order to do this, you need to determine the costs associated with different areas of the startup’s operation. In the following section, we have collected the most important issues to be taken into account in this process.
You should start by writing down the expenses that you have already incurred in connection with your planned startup and that may arise once the company becomes operational, for example, company registration fees or business licenses (e.g. those required in some US states).
Most common costs are related to the purchase or rental of various types of equipment (computers, smartphones, cars). No modern company can also do without other supplies (e.g. printer paper, ink, pens, paper clips). It is also sometimes necessary to use the support of an advisor or consultant, especially in the initial phase of development.
Obviously, payroll and expenses related to possible employee insurance should be on your list as well. A startup will have to operate somewhere, and therefore needs adequate space.Most often it must be rented, which generates further costs.
If your startup sells products, it will also incur storage costs. In many cases, you will not do without the help of a lawyer, so such a fee must also be added to the startup costs. Don’t forget about the cost of launching a website (these days it is difficult to do without one), the accountant’s salary and taxes.
Once you create a list of costs and business needs, you should also estimate the amount of expense for each item. Remember to verify the amounts.This will often require contacting various state institutions, vendors and other entities that will be able to provide you with the necessary information or will be able to make a specific estimate for you.
One-time costs vs. ongoing costs
Estimated costs should be divided into one-time costs and ongoing costs. One-time costs may include:
- startup registration fee
- expenditure on office equipment
- license fees
Ongoing costs may include:
- legal advice
- space rental
At every stage of a company’s development, and especially at the beginning, it is necessary to have a so-called financial cushion. Unfortunately, it often happens that unexpected expenses arise and you need to cover them as well. Therefore, you must have some financial resources in reserve. This way the startup’s liquidity and credibility will not be compromised.
Thanks to calculating startup costs even before you launch your business, you will know what expenses you need to prepare for. This will ensure the liquidity of the company, and even make it easier to optimize costs. Such calculations must be complex, that is, covering all your business operations.
Read also: 7 startup roles explained.
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