Starting a new business is never easy, it involves a lot of hard work and patience. Most of them fail because they are not able to analyze the startup cost. The start-up expenses are not just limited to furniture cost but include expenses such as office space, operation cost, miscellaneous, and many others. There is a need for proper financial planning to run everything smoothly. Anyone planning to start a business needs to study the list below.
How can one Calculate a Business Start-up Costs?
One way to estimate start-up costs is by making a draft business plan. The plan should include a financial break up as well that will give a rough idea about the expenses, profits, and revenue for the short term, i.e for the next three to five years. There are many templates available as well, that would project the financial expenses. It is important to keep in mind that there might be some recurring costs involved as well as some would be just initial expenses.
The cost depends from business to business as well the capacity matters a lot. So below is a list that would roughly give an idea about the business start-up expenses but a person planning to open a start-up needs to do his/her own research to get details about the financial cost for the same.
The Business Start-up Costs List
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Equipment
Every business, big or small needs equipment that needs to be financed before starting out. The cost involved in equipment depends on the business type.
For example, someone starting a logistic firm would need to finance trucks while a restaurant owner would need kitchen appliances and crockery.
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Incorporation Fees
Every business, especially start-up needs to know about the implications related to finance, legal, and tax. While forming a company or a limited liability firm, an article of organization needs to be filed with the respective state. This fee can be as low as USD 50 and can go up to a maximum of USD 725, depending on the state of residency. State and federal permits or licenses also need to be filed, even if not considered to incorporate. The documentation types depend on the location and the industry.
For example: dealing in aviation or agricultural fields needs a federal license whereas trade-specific licenses are needed for the trading industry.
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Office Space
Buying or renting an office or business space is a fixed cost that is a sizeable proportion of the total cost. The money spent on the same depends highly on the location of the space as well its size. These costs can be cut out initially if considering to work in coworking space or from home, but is ideal just for small businesses. The overhead cost is further decreased when the business offers certain kinds of services.
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Inventory
Anyone planning to open a start-up that revolves around distribution, manufacturing, the wholesale or retail sector will need the inventory to be secured from the very start. The inventory should be within a limit else there are chances of it getting spoiled or outdated.
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Marketing
Marketing a very essential for a start-up. The marketing cost can come in various forms that might include signs, business cards, banners, paid ads, giveaways, etc. One might hire a video producer to advertise through a video as well. But it is advisable to spend the minimum amount on an advertisement as there are ways that allow you to market free of cost as well.
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Supplies and Office Furniture
This is again a huge investment. A traditional job that operates 9 to 5, might need a phone, compute chair, and desk. The cost involved in accounting software, office supplies, appliances for break rooms, etc also needs to be considered. This start-up cost again depends from company to company, the number of employees as well as the industry type.
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Utilities
Apart from downpayment and rent, there are other fixed costs that might have to be considered on a weekly or monthly basis. This includes electricity bills, gas bills, phone bills, internet, water, etc.
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Salary or Payroll
Employees and workers are the key or essence of any business. Even though when not making profits initially, one still has to pay the people working under them. Paid time off, overtime pay, commissions, and net pay are all a part of payroll. The expenses involved in payroll depend highly on the employee or the worker type and their experience.
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Professional Consultant
Every firm mostly needs an accountant to deal with finances as well as a lawyer for legality involved. It is not needed to hire them for full time but it is important to have them around when you want to know things about taxes, trademark, licenses, permits, etc.
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Insurance
Evry start needs some or the other kind of insurance. And insurance is never cheap. Moreover, it can be fixed as well as variable. It is the kind of business one would deal in that decides what insurance one might need. Error and omission, workers compensation, commercial property, and general liability are some insurances that business mostly needs.
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Taxes
It is very difficult to calculate the business taxes initially as it depends on the business entity, deductible expenses as well as revenue. Moreover, as of now, the corporate income tax is fixed to 21%. This is one of the reasons why investing in an accountant is worth every penny.
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Travel
It is a variable cost and not every startup company needs it. But when a firm is dealing with customers or is a consultancy firm, there might be a need to think about travel expenses. For each employee that needs to travel, the accommodation, food service as well as transportation costs need to be included.
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Shipping
This expense is also majorly for the people who have been involved in the service-based industry. Start-ups involved in retail need to consider the shipping charges whereas restaurants might have to consider delivery costs. Not only this but the postage and packing material costs also has to be paid attention to.
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Website
Not every business thinks of having an online presence. But the ones who want e-business as well need to consider the initial cost require to form a website as well as maintenance expenses in long term as well. Web developers are also needed for the same, and the fee charged by them is usually high.
How can entrepreneurs who are starting out can save money?
Not all expenses involved in start-up costs be negotiable. But one can save a lot by considering alternatives such as buying second-hand furniture and supplies. It is better to know at least the basic of finance and legalities to save money and to make sure you are not overpaying. Marketing is something where one can save a lot of money by advertising on social media or in newspapers. Doing a bit of research and considering many options can help one to choose the cheapest provider for shipping and delivery.
Now that anyone who is considering opening a start-up has enough knowledge about expenses that might be involved. The next thing they need to focus on securing start-up costs funds.
