One of the most important things to do before starting a business is to estimate how much cost you will incur in putting such business in place. It is never a wise idea to assume that the amount of money you have on you will be enough to properly kick off your business. That is to say, your business financing is important. A whole lot of persons have saved money, sold properties to raise cash for business financing, and have thought they’d done enough to foot the bills for their startup. Only to realize half way, that the money won’t be enough to properly fund their business.
It can’t be argued against, that having an estimate of your startup cost will benefit your business more than not having a plan at all. At the core of this business planning to estimate your startup cost, is to look at your business expenses as individual components.
Factors to Consider when Estimating Startup Cost
In estimating your startup cost, there are a couple of factors you will have to take into consideration, as well as a few educated guesses. This is because you can’t necessarily know the outcome of every situation with certainty.
Determine how much you are going to spend on assets
Your business assets are the foundation on which your business will be built. They are the things that have a long-term use in the business. To better understand this, a person starting a manufacturing business will need raw materials, and a photographer will definitely need a camera. For a service offering business, this might not be necessary.
Your inventory, available cash and insurance all make up your asset. For each of these, take an educated guess, and if you are not too sure about the cost, make market researches, or call friends you think will have better ideas. Your real estate agent is a call away for prices of rental spaces, and a call to an insurance broker gives you the knowledge of insurance plans and prices.
Determine the cost of your expenses
Some purchases you make for your business fall under the expenses category. Not all of them are assets. Some of the expenses include the amount you’d pay for legal services and consulting, the cost you will incur in driving marketing campaigns for your business. The cost of building a website, as well as monthly salaries to employees are all included in the expenses category.
An addition of your starting assets and starting expenses will help you calculate a good deal of your startup cost.
Knowing how much money you need to have in the next couple of months to kick off, is the final part of estimating the cost of starting your business. Its importance can’t be overemphasized as your startup might not be generating the required sales to cover expenses at the initial stage.
It is advised you prepare a list of 12 months of estimated sales, costs and expenses for each month at the start of the business. Subtracting the costs and expenses from the sales for each month, gives you an idea on whether you’re short on cash or not. And how long it will take to break even. This will generally give you how much you need to have to start.