One thing is for sure – it takes money to make money and you will have out of pocket expenses to start your business! The type of startup costs entrepreneurs incur often depends on the type of business they are starting. We will touch on the typical costs that need to be considered, but please keep in mind this is not a catchall. To discover the needed startup capital, we recommend doing a thorough assessment and creating a business plan. Let’s go over the typical costs and considerations necessary when starting a business!
Preparation is the key! Knowing how much money you’ll need to launch and sustain your business is vital before even starting. According to Business Insider, “Most businesses fall into one of three categories: brick-and-mortar businesses, online businesses, and service providers.” Different costs come with each and can range from office space, equipment and supplies, insurance, lawyers and accountants, to inventory. We recommend creating a list of the necessary expenses to get you started. Some startup costs will be unavoidable, and some can be pushed further down the road. A few examples of unavoidable costs are those associated with permits and licenses – which are defined state-to-state, and municipality-to-municipality, formation fees, and insurance. There can be a sticker shock for these costs but they are worth the investment to ensure your business is legal, protected, and fruitful. Do your research and network with other entrepreneurs to help you identify and estimate the ranges for what similar companies pay for expenses related to payroll, marketing, and professional services.
Once your business expenses are identified, we recommend categorizing them into one-time expenses and recurring (or monthly) expenses. Examples of one-time expenses can include hiring a developer and brand/graphic designer for your logo and websites, formation and account setup fees, and even some necessary equipment purchases. Examples of monthly expenses include salaries, rent, utility bills, and supplies/materials. SSC Tip: Keep thorough records of all your expenses for accounting and tax purposes – it can save you money on your tax bill. A good rule of measure is to estimate one year of monthly expenses although forecasting for five years is ideal. Let’s be realistic, there are no guarantees that you will start making money immediately after you start. Consider estimating how long it will take to generate consistent profits and include that in your financial plans and forecasts.
As always, we are here to help. If you need guidance or a sounding board to help you think through your startup costs reply to this email and let us know.
