4 Steps To Calculating Your Business Startup Costs

Most businesses require some capital to get off the ground. Even a small online shop that you run from your home may need funds so that you can build up inventory, invest in advertising and cover expenses in the beginning.

Once you open for business, you will have regular expenses, such as utility bills, shipping fees and salaries. Planning for your costs beforehand can save you some headaches down the road. Here are four steps to calculating your business startup costs.

• Determine What You Need To Get Started

Your upfront costs depend on the type of business you run. If you have a service business, such as plumbing or mobile dog grooming, you will need a reliable truck or van to hold your equipment and travel to customers’ homes. A brick-and-mortar company requires a physical location you must buy or lease. An online business requires inventory to prepare for sales.

Come up with a list of every expense you can think of, then do some research to learn about items you may have overlooked. Your list may include the following:

Website creation

Printed advertising

Insurance premiums

Utility bills

Employee salaries

• Add Up the Numbers

Once you’ve defined your list of expenses, it’s time to figure out how much each item will cost. Some have fixed amounts that you can calculate ahead of time. Insurance premiums are an example of those. Others, such as utility bills, may vary from month to month — budget on the high side for these expenses so you can plan for adequate funds.

If you have things on your list that you can’t estimate, do some research. You may be unsure of what the salary range is for an employee at your type of company. Ask around or look online for salary estimates to include these costs in your budget.

• Secure Funding

Many companies need capital to get started. Obtaining a business loan is an excellent way to fund your startup costs. Researching business loans in Michigan can give you an idea of what loan types are available.

You may need to finance large equipment, make a down payment on a warehouse, or apply for a more general loan for business costs. Business loans may have lower interest rates than other loan types.

• Prepare a Formal Business Plan

A well-written business plan is a road map for your company. It outlines how to run, structure and expand your business. It guides you into thinking about primary considerations and plans. It is also an essential tool when you apply for loans. Lenders and investors want to see that you have thought about all the aspects of starting your business. They want to ensure they can feel confident about investing in your company. A business plan answers questions investors may have. It also shows that you are serious about your goals.

A business plan doesn’t have to be lengthy or intimidating. You can write up a one-page document that hits the main points or go into detail if you want. Whatever type you choose, try to include the following:

Executive summary: what your company is, why the market needs it and why it will be successful

Company description: A detailed look at the market you plan to serve, where you are located, and the advantages you offer over the competition

Market analysis: Other companies in your market, their strengths and weaknesses, and the industry outlook

Organization: Who runs your company, and how you will manage it

Product or service line: What you sell and how your customers benefit

Marketing and sales: How you plan to advertise your company and retain customers

Funding request: An outline of your funding requirements and how you plan to use them

Determining your startup costs might not be the most fun step to opening a business, but it’s necessary. Planning and securing your funding now makes it much easier on you once you’re up and running.