Starting a Business, How Much Money Will You Need to Launch Your Startup & Cover Your Costs?

Before you can launch your business and start seeing profits, take some time to estimate the startup costs.  You’ll need to know everything that goes into starting your business before you apply for a loan to cover those costs.  Since every business is unique, you’ll need to tailor your specific needs to your business.  Here’s are some steps to help you get started.

Step 1:  Consider the Costs

What costs are there to consider?  See how well these apply to your business.

• Sale Costs:  Your products, your materials, the equipment you’ll need, shipping costs, packaging, and a place to store everything…all factor into this category.  What products do you need to have on hand? What costs will it take to market your products? What budget will you need to provide to your sales team? How much will it cost to send out samples?

• Professional Service Costs:  Incorporating your business, copyrights, legal fees from your attorney, trademarking costs, professional consultations, getting an accountant, setting up contracts…are all included here.  Which professionals do you need? It will generally cost between $2000-6000 to set up a corporation and then you need to budget for annual fees to your attorney and for your accountant as these are typically on an ongoing basis.

• Administrative Fees:  You’ll need business insurance to cover liabilities and your property if you own or rent a workspace.  You may pay be required to pay rent on a facility or retail space as well, so it is important to factor in these costs within your business plan.  Be sure to also consider any deposits that will initially be required for your insurance or your workspace.

Other costs that could fall in this area include office supplies (including everyday costs and furniture) as well as parking costs, licenses, shipping costs, and utilities.  In this category, list anything that you’ll need to have access to on a daily basis to run your business. If you can get accurate estimates through research, this will help to ensure the overall accuracy of your business plan.

• Electronics/Technology Costs:  Will you need to invest in computers, IT professionals, website development, internet costs, and security needs. Should you lease or purchase? What cost cutting strategies might you be able to implement?

• Marketing Costs:  What type of marketing will you do?  You’ll need advertising budgets, trade association membership costs, public relations costs and material materials (don’t forget to have business cards done). With each of your marketing efforts, consider the actual cost of the marketing plus the graphic design, copy and printing.

• Employee Costs:  If you hire employees, you’ll need to consider their wages, benefits, payroll taxes as well as the costs of keeping them, such as workers compensation. Also, if you plan to use a payroll company, be sure to include these costs in your business plan.

Step 2:  Estimate the Startup Time

The amount of time it takes you from starting the development of your business until you begin selling products should be considered.  You’ll need funds to cover all expenses you have during this time of “no income” where you’ll be running at a deficit for sure. 

Determine how much money you’ll need during this start up time period and set it aside. Keep in mind that under capitalization (not having enough cash) is one of the top reasons for business failure. This is why it is essential to look at every aspect of your business financial plan before you get started.

Step 3:  Consider Initial Sales

No one knows about your business and therefore sales will be slow at first.  As you start building a clientele, the sales will increase, but you still may not make enough to truly draw a profit.  As you consider setting up your business, consider the money you’ll need to run your business during the first months when you aren’t making a significant income.  While it may be hard to get an accurate figure here, do your best to get as accurate as you can based off of the costs you estimate for the first months of no income.

As you consider the amount of money you need to have for start up, always look toward the projected income carefully.  It is often best to be ultra conservative, as you can always pay down the loan if you have more money in, but if you don’t have enough, you could jeopardize the entire foundation.