Plan your business
Calculate your startup costs
How much will it cost to start up your business? Calculate the startup costs to apply for financing, attract investors and calculate when you will start generating a profit.
Contents
- Calculate the startup costs before you launch your business
- Identify your startup costs
- Calculate how much your startup costs will be
- Add up your costs to have a complete financial picture
- Use your startup cost calculation to apply for financing
Calculate the startup costs before you launch your business
The key to a successful business is preparation. You will have to cover some costs before opening your business. Understanding which costs are necessary will help you launch your business successfully.
Calculating startup costs helps you:
- to calculate your profit
- to conduct a break-even analysis (no gain, no loss)
- to secure a loan
- to attract investors
- to save money through tax deductions
Identify your startup costs
Most businesses fall into one of the following three categories: traditional businesses (brick & mortar), online businesses and service companies. You will have different startup costs, depending on the type of business you do.
There are some common startup costs that every type of business will have. There are startup costs that are unique to your type of business. Examples are:
- Office space
- Equipment and other necessary office appliances
- Communication
- Utilities
- Licenses and permits
- Insurance
- Lawyer and accountant
- Inventory
- Employee salaries
- Advertising and marketing
- Market research
- Printed marketing materials
- Building a website
Calculate how much your startup costs will be
When the list of your business expenses is complete, you can calculate your actual costs. This process will be different for each expense you have. Some expenses will have well-defined costs. The costs of permits and licenses, for example, are defined and public. However, you will have to calculate other less well-defined costs, such as employee salaries. You should do online research and consult mentors, vendors and other services providers to see what other similar businesses pay for aforementioned expenses.
Add up your costs to have a complete financial picture
Once you have identified your business expenses, organize your expenses into one-time expenses and monthly expenses. One-time expenses are initial necessary costs to start your business. Buying required equipment, hiring a logo designer, paying for permits, licenses and fees are considered to be one-time expenses. Some of the one-time expenses are tax-deductible. Keep track of your expenses and consult with your accountant when filing your tax return with the Tax Department (“DIMP”).
Monthly expenses include, for example, salaries, rent and utilities. Take at least one year of monthly expenses into account. However, five years would be ideal.
Add up your one-time and monthly expenses to gain insight into how much capital you need and at which point it will be necessary to spend it.
Use your startup cost calculation to apply for financing
It is advisable to create a formal startup report.
Your formal startup report should have a clear structure and be easy to understand. Investors and financiers will compare the expenses you expect to incur to your projected sales in order to determine the potential of your business.
