An important initial step for budding entrepreneurs is to properly
forecast the start-up costs for a business. These expenses can vary
widely based on the type of business. A failure to recognize key
start-up costs could seriously impact the viability of your fledgling
venture. Aside from keeping your new business afloat, accurately
determining your start-up expenses can also help you in drafting an
effective business plan, seeking bank loans and investor funding, and
assessing potential tax deductions. In considering start-up costs, you
will need to estimate both one-time and recurring expenses. Here are
some major expenditures you will need to figure out before launching
your new business.
- Structuring Your Business. Initially,
you will need to decide what type of business organization works best
for your new business. It makes sense to engage and consult with a CPA,
lawyer, or other business services provider to help you investigate,
select, and properly register your business organization as well as
obtain a tax identification number. These professionals may be able to
assist you with business, liability, financial, and tax strategies that
may save you time and money both at the start and during the life of
your new business. In addition, if you decide to seek franchising
opportunities, it may be important to seek legal and financial
assistance in reviewing the franchise agreement to better understand
your obligations and to protect your interests.
- Obtaining Licenses, Permits, and Insurance.
Many businesses are required to obtain business licenses or other
permits from government agencies before opening their establishment.
Depending upon the industry, these licensing and permitting obligations
may require compliance with federal, state, and local regulations.
Furthermore, you should consider the expenses of insuring your business
and protecting your personal assets, whenever possible.
- Renting or Buying a Business Location. Depending
upon your business, you may decide to rent or buy a business location
to provide your products and services or to store your inventory and
equipment. Establishing a physical location involves both one-time
outlays, such as security deposits or closing costs, and recurring
expenses, such as rent, mortgage payments, and utilities. Initially,
your business location may also need to be repaired or renovated to meet
your requirements and you may have to bear some or all of those
charges. Calculate both the one-time and continuing expenses of your
business location when estimating your start-up expenses.
- Obtaining Furniture and Equipment. Unless
you want to sit on the floor, you may need to lease or buy office
furniture for yourself, customers, and employees as well as filing
cabinets, shelving, outdoor business signs, and displays. Your equipment
needs may vary depending upon your industry, but some items such as
office computers and software or construction and manufacturing
equipment could be quite costly. You may find some cost-savings in
renting or buying used furniture and equipment, but consider whether
these pre-owned items will meet your business and safety needs. Keep in
mind the costs of maintaining your furniture and supplies.
- Purchasing Inventory and Supplies. If
you are selling products, you may need to buy an initial inventory to
meet vendor minimum order requirements and replenish that inventory over
time to keep up with customer orders. Even if you are running a service
business, you will need some supplies whether its doggie treats for
your dog-walking service or cleaning supplies for your housekeeping or
auto detailing business. Keep in mind that you may also need to estimate
office supplies, such as paper, ink, toner, and pens and pencils in
virtually every business enterprise.
- Advertising and Marketing Your Business. Today
there are numerous ways to advertise and market your business to your
customer base. But it takes time and money to design and create business
logos, pamphlets, brochures, websites, social media campaigns, and
print and broadcast ads. Be sure to think about the expenditures for
both internal and external communications, including telephones, fax
machines, computers, and Internet access, that help you to stay in touch
with customers, vendors, suppliers, and employees. In some instances,
you may even seek out paid market research on how to best reach your
customers. Think broadly about these expenses in gauging your start-up
- Paying Wages and Benefits. Although
you may try to go it alone in the beginning, some businesses may
necessitate that you hire employees in order to get your business off
the ground. Do your homework on legal and market issues regarding
employee wages, payroll taxes, benefits, and workers compensation, if
applicable. You also should evaluate what you will pay yourself to
operate your business.
Although this process may seem
overwhelming, you may want to reach out to local small business
incubator programs or organizations such as the Small Business Administration (SBA) or the Service Corps of Retired Executives (SCORE)
for help on calculating likely start-up expenses. In addition, the SBA
and SCORE offer helpful online and in-person workshops, mentoring
opportunities, and business templates to aid small businesses as they
plan for and operate their new ventures.