A common question when starting a business is “How much money do I need?”. Unfortunately, there isn’t an easy answer or way to know precisely how much it costs to start your own business and running. But that doesn’t mean you shouldn’t try.

Estimating initial costs is a crucial part of every business plan. The business plan includes a break-even analysis, determining the revenue you’ll need to bring in, helps attract investors, and secure credit.

Starting a new business means entering the unknown. No matter how much preparation or market research you do, there will always be a risk. But, by carefully analyzing everything you need to turn your business idea into a reality, you can minimize your liability and give yourself a better chance at success.

To start your own business put in the work

Make the Most of This Business Startup Checklist

New businesses aren’t easy; to reap the benefits at the start, you need to put in the work. This means researching all your potential start-up costs as part of a comprehensive business plan, and mapping every aspect of the business. Any early mistakes like underestimating your expenses can result in you having to play catch up, right from the start.

Research the industry you’re entering and the customer base you are trying to tap into. Maintain a list and compile estimates for all the expenses you foresee.

It can be useful to seek out professional help, like market research agencies and business consultants or seeking advice from experienced industry vets and accountants. If finances are not your strong suit, it’s never too early to bring in external accountants or a chief financial officer (CFO). And once you find someone, you might even want to connect them with a payment platform’s accountant referral program and earn a referral fee.

In any case, it’s worth remembering that not all start-up costs are equal, and it’s good practice to separate them into different categories:

One-time vs. recurring costs

Starting a business involves many one-time expenses, including business licenses, registration fees, new equipment, initial recruitment, website design, and security deposits. You need to spend money to make money, and the first months of operation will likely be the most expensive.

In contrast, recurring costs are those paid on a regular basis, either monthly or annually. Typical recurring costs include:

  • Payroll
  • Rent
  • Utilities
  • Office supplies
  • Web hosting
  • Insurance
  • Marketing
  • Loan repayments

Fixed vs. variable costs

Fixed costs are a specific amount that typically remain consistent month to month, such as rent. Variable costs are generally related to your product, and change depending on how much sales you make. These include your inventory and other resources that go into making your product or service.

Finance Options For Startups

Must-haves vs. optional costs

You need to separate what your business really needs and what you want. Essential costs are fundamental to business operations, i.e., without them, there is no business. Optional costs are things that would be nice to have, often making a significant difference to the company, but you could survive without them.

You should only consider optional costs if the budget allows or they make a convincing business case, i.e., they pay for themselves given the additional revenue they will generate.

Compiling your list

Once you have a comprehensive list of everything your business will need to get started, you can start researching vendors and getting quotes. Some expenses have a well-defined cost (e.g., permits and licenses), while others require additional work to predict. Assign the closest estimate you have for each item on the list, based on the quotes you got, then sum them up. The more time and effort you put in at this stage, the more realistic your financing plans will be.

Pay close attention to one-time upfront expenses. That will help you understand your startup costs and how much capital you’ll need. Unless you’re planning to bootstrap your business’s startup costs, you’ll need to find financial investors or secure credit from a financial institution to get started. Repayments and interest on any business loans you acquire are a necessary recurring expense you need to factor into your budget.

Break-even analysis

Break-even analysis weighs the start-up costs of a new business against the profit from each sale to determine how many sales you need in order to break even and pay all of your expenses. The break-even point is the specific number of units you need to sell where you haven’t lost any money, and you haven’t made a profit.

This financial calculation is critical to help with cash flow projections and predicting how much start-up capital you’ll need. With an accurate break-even point, you can develop a sales strategy that will help ensure you stay profitable.

Start-up costs and taxes

Depending on your location, you’ll likely be able to deduct some of your start-up costs against business taxes. For example, in the US, if the expenses of opening your business remain below $50,000, you can reduce $5,000 for business start-up costs and $5,000 for organizational costs.

start your business

For specific information regarding taxes and potential start-up cost deductions (i.e., what counts and what doesn’t), consult a qualified accountant or dive into the IRS’s documentation.

Starting a business with accurate finances

Building a business from scratch and becoming your own boss is an exciting idea. But it comes with a lot of work and a level of uncertainty. Compiling everything you need to get up and running can reduce uncertainties, and will help guide you in making sound financial decisions moving forward.

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