Costs to consider when starting a business

For your business to succeed in its infancy, it is important to outline the startup costs into your business plans. In short, startup costs are the expenses that are required in order to start a new business. If you do not properly define and estimate your startup costs, your business may flounder financially and eventually go under.

For many new business owners though, knowing how to outline their startup budget can be confusing. If you are one of these people, read on to learn about startup costs and budget estimation.

STARTUP COSTS TO CONSIDER WHEN STARTING A BUSINESS

Every business is different. So, startup costs vary from project to project. With that being said, there are a few startup costs that almost every new business should include in their startup plan. Here are the most frequent costs to consider when starting a business:

1. RESEARCH COSTS

To better understand the market that your business caters to, you may need to hire a market research team. Though this step is optional, many business owners find hiring a market research team beneficial. If you want to research the market without hiring a marketing team, you can conduct your own research.

2. BORROWING COSTS

To create your business, you will need to acquire a lot of capital. You can support a new business through equity financing or debt financing. Equity financing is when you sell a stake in your company to receive backing. In contrast, debt financing is borrowing money and paying it back later. Most small businesses opt for debt financing through small business loans. To take out a loan, you will need to calculate the cost of loan payments.

3. INSURANCE, LICENSES, AND PERMIT FEES

Depending on your business type, you will need certain insurance, licenses, or permits. All of these categories require costs or fees. You will need to conduct your own research to find out what insurance plans, licenses, and permits are relevant to your business and city.

4. TECHNOLOGY

Another startup cost to consider is technology. Technology startup costs can cover anything from creating a website, outsourcing payroll and accounting, computers, and more. Though technology may differ from business to business, having functioning and up-to-date technology is a must for any modern business.

One of the most important steps in starting a business is creating an appealing and functional website. Though there are plenty of affordable website building tools online, you will want a website that has customized graphics and smooth flow. This can cost upwards of $1,000 if you hire professionals.

Additionally, accounting technology will also be an important technology cost. Whether you choose to outsource your payroll or use an accounting software yourself, finding the best payroll and accounting technology for your business can cost a pretty penny.

5. SUPPLIES

Also, expect to pay for supplies or equipment for your business. Obviously, certain businesses will require more supplies and equipment than others. So, make sure that you budget an appropriate amount of money for your business’s supplies or equipment.

6. LEGAL FEES

One of the best ways to ensure that your business is up to code and follows all laws and sanctions is to hire a legal team to review your documentation. This will prevent you from paying any fees or fines down the road, but it will require payment upfront.

7. MARKETING

Any successful business requires a strategic marketing strategy. You can either create your own marketing strategy or hire a marketing company to do the work for you. Either way, marketing will cost money during startup, and it is an investment that shouldn’t be ignored.

If you are creating your own business marketing strategy, you should consider how much you’re paying for specific marketing endeavors and compare it to the number of customers you receive from that endeavor. Be sure to diligently track your marketing income and expenses so you can maximize your costs.

CALCULATING STARTUP COSTS

Now that you know the key costs to look out for when starting a business, it is also important to know how to budget for these costs. Budgeting is a crucial step for startup costs because they will ensure that you have enough money for your projects.

Here’s how you can calculate startup costs:

1. IDENTIFY EXPENSES

The first step to calculating your startup costs is identifying your expenses. As we have already said, every business will have different startup needs and costs. Look at the startup costs discussed above and research more for your specific business. Then, create an extensive expense list.

2. ESTIMATE THE COSTS

Once you know what you need to pay for, it is important to estimate the costs. If you are able, assign each item on your expense list an exact number of how much money it will cost. Doing so will create a more realistic budget. If you do not know the exact number yet, estimate, and be generous. This will allow you a bit of wiggle room in the case that you are spending more than anticipated.

3. ADD UP THE TOTAL

After you have estimated the cost of all your items, you should organize them into one of two categories: one-time expenses and recurring expenses. The total of the one-time expenses is generally how much you need for the startup costs. The one-time expenses and recurring expenses together show how much capital you need to start your business. Add up the total, and go from there.

RECAP

It is imperative to outline startup costs into your business plan so that your business can sustain itself in the early stages. When outlining your startup costs, use the items we listed as a starting point, and then research your exact business’s requirements. From there, be thorough in your cost estimations and remember that it is better to overestimate the price than underestimate. Once you have your budget created, make sure to stick to it, and keep a thorough inventory of your payments.