Entrepreneurs have much to consider when starting a business. Choosing the business name, business structure, and office location are some of the first and most important steps in starting a business -- although the most successful ventures begin with a solid business plan. It's also important to consider start-up costs when making the decision to start a business, since even the most well-conceived business idea will not flourish without the right amount of capital. Knowing the estimated start-up costs can help you determine if the business is feasible, and whether or not you will need financing.
Estimating your business costs is not a very difficult task, but it takes substantial time and research to do it right. There are many obvious costs, such as payroll and facilities, as well as some hidden ones. The following worksheet of common business start-up costs can help you estimate what your costs might be. Please note that the items listed in this worksheet are just examples and may or may not apply to your business. You will need to figure out other start-up costs that apply to your particular venture.
Rent |
$ |
Improvements/Build-Out |
$ |
Salaries/Wages |
$ |
Payroll Expenses |
$ |
Equipment Leases (copiers, fax machines, telephone system, computer) |
$ |
Furniture |
$ |
Supplies |
$ |
Inventory |
$ |
Advertising |
$ |
Utilities |
$ |
Licenses/Permits |
$ |
Insurance |
$ |
Accountant's Fees |
$ |
Attorney's Fees |
$ |
Other Expenses |
$ |
Start-Up Financing
As previously mentioned, estimating your start-up costs can help you figure out if and how much you will need in order to finance your business. Most business owners will finance at least a portion of their business, often through a combination of debt and equity. There are many options for financing your business, each with its own benefits and risks.
Money from Family and Friends
One resource for financing is family or friends. It's important to really think about it before doing so, though, since it has the potential to strain your familial relationships or friendships. If you don't want to risk your personal relationships, or don't believe that your family and friends have the money to finance your business, you have several other options.
Loans
You can get a loan from a bank or from one of the loan programs offered by the Small Business Administration. Any loan program has its own eligibility criteria. You can also always use your credit card. While using a credit card is the most costly way to finance your business, it can be a good option if you don't qualify for a loan.
Equity
Businesses also may consider offering equity in exchange for investment capital. In this arrangement, investors provide capital in exchange for a percentage of the company. The portion of the company -- typically expressed in terms of "shares" -- increase in value as the business becomes successful, but must be liquidated through an acquisition or public stock offering. Of course, the investor may not see any return if the business goes south.
The Importance of a Business Plan When Estimating Startup Costs
When looking for people or companies to finance your business, it's important to have a business plan. A detailed business plan will give your investors knowledge and confidence in investing in your business. Including an estimate of start-up costs in your business plan can be very beneficial to both you and any investors.
Don't Take Any Chances: Meet With an Attorney Before Starting Your Company
There are plenty of decisions and tasks involved in starting a business, particularly the universal question of how to fund it. While an attorney will increase your start-up costs initially, hiring a small business attorney to assist you in starting your business and plan for start-up costs will pay dividends later on. Get a head-start today by meeting with an experienced business attorney near you.
