Before beginning any new business endeavor, you need to know how much money it will take to take it all the way through to a profitable position. If you don’t have those figures in front of you before you begin, chances are you will be unprepared when needs arise, and the business could fail.
Many new business owners understand the importance of knowing the financial aspects of a startup. Unfortunately, too often new business owners want someone to sagely give them a magic number, and tell them exactly what they need to start a business. There is no magic number. No two businesses are enough alike to even give an estimate on a particular type of business.
Unless a company is a franchise, and controlled by a corporation it isn’t possible to lump start up costs into a category that is a one-size fits all. Getting the numbers is possible, but each new business owner must do the work to find them for themselves.
How to Determine a New Business Start Up Costs
The best way to really understand what it will take to get started and keep a business running until it can support its own operation is to create a business plan. Some new business owners try to simply assess standard costs such as the price of renting space, initial cost of equipment, supplies, phone and utilities. The problem is that even though these costs will give the owner an idea of what it will take to open the “doors” of their company whether it is a brick and mortar company or an online business, it doesn’t give them an idea of what it will cost to operate through the early stages where expenses often outnumber the profits.
The start up period does not end at the opening of the company. A business plan that covers a realistic estimate of all expenses and expected profits over several years will give the new business owner a true idea of what it will take to make their business a success. While a business plan can be broken down into weekly, monthly or yearly profit/loss budgets, it is easier to develop a weekly or monthly budget for development. Once the figures have been computed, it can be put into a typical business plan format that also includes all of the pertinent information about the company, its owner and principle employees at the beginning.
Having the initial information at the start of the business plan is helpful for lenders when a business owner applies for funding at any point in the business’ lifespan. It has a dual purpose at the start of a business, however. Putting the pertinent information down on paper helps the business owner research proper licensing, and evaluate the skills of themselves and any key personnel they are working with.
