At CapRock Services we understand that starting a business is no simple feat. There are many driven people who want to start their own business and be their own boss. However, before chasing this dream it is important to understand the financial costs involved with doing so. Here is a brief overview of how to properly calculate startup costs when opening a business.
Understanding Business Start Up Costs
The first step in understanding business startup costs is to plan carefully before spending anything. One key reason many startups fail is due to bad accounting practices and underestimating expenses. By not taking the small details into consideration expenses soon overtake seed funding and revenue. While all businesses differ there are common expenses that all share, which are as, follows:
1. Research: No one should enter any industry without studying the current market conditions or existing customer base. Such research takes time, money and may involve outside professionals.
2. Licensing and Insurance: No matter what the business type, professional licensing with state and local government is a requirement; this may be basic or specified depending on industry. Insurance needs vary based on business structure, number of employees, physical locations and business structure.
3. Supplies: All businesses need a careful review of needed supplies and equipment. Equipment can become an expensive proposition, as can the decision between buying and leasing.
4. Promotional Costs: A new business needs to advertise itself to gain customers and a share of the marketplace. Promotion is quite involved and numerous 3rd party marketing companies provide this invaluable service.
5. Financing/Business Loans: Many new businesses require business loans of some sort to provide operating capital while the business establishes itself. These can take the form of debt financing, equity financing and crowd financing. No matter what the source, such financing needs to be carefully recorded.
6. Employee Pay: Unless a business is a sole proprietorship, there will be expenses for employee pay (hourly or salary) and benefits.
7. Information Technology: In the modern business world, computers, software, websites, online sales and social media are all essential parts of success, but come at a cost. Many companies also outsource certain aspects of their IT needs.
How Much Do I Need To Start A Business?
After carefully reviewing the above list, the next step is to use this information to calculate a realistic starting expense. First, some expenses are one-time only costs such as incorporation fees, while others such as equipment rental are part of the ongoing costs of doing business. Also, while some expenses are static (i.e. rent contracts) others such as inventory needs, can vary depending on outside factors and marketplace externalities.
Second, the money needed to start a business should only be for the essential elements required to get it off the ground. Optional business elements can be added later as a business grows. Lastly, any calculations should be budgeted for several months and not just during the opening period. A business is a long-term investment and plans should reflect this.
As the above shows, financing a startup requires very precise planning and calculations. At CapRock Services, we assist small business owners by acquiring the funds they need to grow their businesses and help achieve success. We offer several different types of business loans and can also offer guidance on newer methods of fund acquisition such as crowd source funding. Contact us today to learn more about the products and services we offer.