You all write a plan before starting a new business. However, it will help to calculate what it will cost to start a business from scratch while writing a strategy. In addition, it will help to decide how to manage the funds and expenses. Estimating the startup costs accurately can be a bit tricky. But do not panic. The guide below will help you calculate the cost of business from starting.
Identify All Expenses
To calculate the cost of a business you must first, write down the startup amount that you have incurred in advance. But do not stop there. Instead, determine the expenses you will bear near the company launch. Think about the standard startup expenses like the following:
- Registration Fees: If you are not a sole proprietor, you must register the company with the state. Most startups must select a business structure and file documents with the State Secretary.
- Business Licenses: In some states, you might need a license for your businesses like child or pet care, TV or online broadcast, etc.
- Equipment: In business, you might need some equipment to make products or handle certain tasks. Add up the company expenses for things like smartphones, computers, vehicles, and production systems.
- Supplies: In business, you need to buy necessities like pens, paperclips, cartridges, printer paper, etc.
- Consultants: You might have to pay fees to some consultation and recruitment companies or those who help you to make a business strategy.
- Payroll: This is the amount you pay to employees and what you earn.
- Insurance: Calculate the business and health insurance costs that you will need.
- Office Space: Whether you buy a space, rent an office or pay for a warehouse, keep a record of these costs.
- Inventory: If your business deals in products note the cost of keeping stock.
- Marketing: Every business has to spend some amount on marketing. It includes partnering with influencers, social media marketing, and radio, TV, or newspaper advertising.
- Website: Account for the cost of creating and maintaining a website for your business.
- Taxes: Every company pays income tax. You may also have to pay sales or payroll tax.
- Legal: You may also have to bear costs for the attorney who writes contracts or helps you with legal formalities.
Estimate Cost of Expenses
Once you make the list of all expenses, estimate their cost. This process will be different for each expense. For example, some expenses like permits and licenses will have well-defined costs. In contrast, the cost of other expenses like payroll and marketing is less certain. Look for vendors or service providers to know what other companies pay for similar expenses.
Do the Math
Once you take the cost estimate, divide the list into two parts: one-time and ongoing expenses. Ongoing expenses must reflect a monthly average. Multiply ongoing expenses by the number of months until business launch and add up one-time expenses.
Add a Cushion
You might face a setback or delay even if your business plan is in place. It would be best to count on covering up to six months if business launch delays.
Total Startup Cost
Once you have all the figures, add them to estimate the total cost for a business startup. It will probably be a large number, especially if you plan to add a cushion for a few months but don’t worry as there are different fundings for your monetary help. However, once your company starts, and people begin buying products, you may find that some expenses are lower than you estimated earlier.
these were tips to calculate the cost of business. But, always keep in mind that startup costs grow before you have the amount to supplement your business. So make a budget keeping this in mind. For instance, startup expenses like rent and payroll are ones that you pay until your business is operational. When reaching that point, these expenses will become running ones you take out from the profits.
Linda Rawson, who is the founder of DynaGrace Enterprises (dynagrace.com), an 8(a) graduate and EDWOSB, contributed to the content of this blog. She is the founder of GovCon-Biz. For further information, please connect with Linda on LinkedIn, or contact her at (800) 676-0058 ext 101.
Please reach out to us at GovCon-Biz should you have any questions.