So you want to start a new restaurant/accounting practice/gnome-themed birthday party company (insert your type of business)? If this is your first company, you’re probably wondering how to estimate your start-up costs.
Heck, you might need to define the term “start-up costs” first. Quickly, these are products and services that you have to purchase before you ever open your doors. These are distinguishable from expenditures like salaries and rent, which you’ll continue to pay after you open.
How to Calculate Your Business Start-Up Costs
Create a simple table in a spreadsheet, and include several rows for Assets (tangible items like furniture and equipment) and several more for Expenses (consulting and legal fees, for example). Itemize those Costs under each category in one column, and enter the estimated spending in the next column. Create a SUM formula that will automatically calculate the subtotal for each category, and the final total at the bottom.
Don’t be afraid to call around to get quotes on the items in your list. Renovations, incorporation fees, copy writing, insurance…get multiple quotes and then create a reasonable budget for each item.
You can also try an online calculator that will help you estimate start-up costs and determine your line items. Be sure to add an amount at the end for “other” – because you’re guaranteed to forget something. I usually set this amount at 10% of the total.
The example shown below also includes lines showing how the start-up costs will be funded – through equity investment, debt financing, or some combination.
A Note about Bootstrapping
Some entrepreneurs “bootstrap” their start-ups – meaning they spend as little money as possible on the launch and stretch every dollar as far as it can go. If you’re using a bootstrapping or lean start-up strategy, be careful not to underestimate your start-up costs. You don’t want to run out of cash before your business ever opens; in fact, you want to have a reasonable amount of working capital left over from start-up so that you’re in a strong cash position when your business opens, and you can cover your ongoing expenses. Got your start-up costs in order? Now comes the fun part: finding funding sources!
Jessica Oman owns Write Ahead Consulting, and helps entrepreneurs launch and grow their businesses by writing business plans and providing advice to aspiring small business owners.
Related Article: Seeking Equity Investment? Know the Rules