How To Estimate The Start-Up Costs For Your New Business

Before starting a new business, it is essential to create a plan with accurate cost estimates and funding. These start-up costs will be the basis on which a lender will choose to finance the business or not. There will be initial expenses to cover, including legal fees, necessary licenses and permits.

The first step is to estimate the cost of the rent, lease or mortgage of the new business’s location. Make sure to include this amount in the start-up costs and consider including enough for at least one year. Also estimate the costs of the equipment needed to run the business. This can include everything from computers and desks to pens and paper clips. Think of every possible necessity. There may be shelves needed to hold inventory or a cash register to the hold the money. Every expense, no matter how minor it may seem, will add up.

The next cost to consider is the cost of initial start-up inventory. There will be expenses to cover the materials needed to make the product or to have the product made for re-sale, or to simply buy the products already completed and ready to be put on the shelf.

Since the business will be your own, it is possible that your personal funds will suffer as the business takes off. It is a good idea to include your own salary for the first year into the start-up costs. If there will be other employees, include their salaries as well. Make sure that everyone gets paid.

The start-up money should also include enough to cover promotional and marketing materials. This will include signage for the business as well as direct mailing, inclusion in any telephone books, a website, and any additional promotional advertisements.

It is also a good idea to put a cushion in the bank for unforeseen circumstances. It may be tempting to request too much, but remember that this money will have to be paid back. This cushion should be added in to the requested start-up costs when creating the business plan.

The business plan is what will secure the financing for the new business. By including the estimated start-up costs within the business plan, the potential investor will know exactly what they are getting into and can make an informed decision. Without a reliable financial backer, a business is doomed from the start.

Next article: Start Up Capital For Women-Owned Businesses

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