Whether you are trying to secure funding or you are trying to figure out what it will take to get your business up and running, an accurate estimate of start-up costs is necessary to predict financial performance for the first year or few years.
Every business has different cost requirements, but these steps will help you gather some numbers to start.
- Determine your start-up cost structure.
Here are six cost categories for new businesses;
- Cost of sales
- Professional fees
- Technology costs
- Administration costs
- Sales and marketing costs
- Wages and benefits
Think about these cost categories, how they affect your business and how they will be weighted across your business.
- Develop comparables
Compare industry leaders with your business’s costs. Some aspects like your revenue numbers will be different, but it will help you break down how much you should be spending on each cost category.
- Project start-up costs conservatively.
When calculating start-up costs, keep in mind you may need to cover expenses for a few months before you even open for business. And once you are operating, it will take time to become self-sustaining. Be conservative in the early stages with your cost projections and estimated revenue.
- Separate one-time costs from reoccurring costs.
Distinguish which costs you will have year-to-year like salaries and rent from one-time costs like furniture and equipment. This will allow you to establish a budget for after the start-up period.