Even if inflation slows in 2024, the rising costs small businesses face pose significant challenges to success. That doesn’t have to discourage entrepreneurs from taking the risk and starting a new business. After all, new business startups are still growing at a breakneck pace after setting a record in 2023, in accordance with the U.S. Census Bureau.
But managing your costs will likely be a major factor in whether your startup succeeds. So whether you’re trying to start a part-time job or you’re one of the tens of 1000’s of recently laid-off tech staff trying to strike out on their very own, here’s what it’s essential know about costs. Follow this approach to demystify the mystery and create a clear picture of the funding your startup will need.
Initial Cost Categories
Keep in mind that different small businesses will have various kinds of startup costs. For example, a furniture retailer might need a storefront and staff to operate it, while a toy manufacturer might need manufacturing equipment, a warehouse, and staff trained to operate the equipment. On the other hand, if you run an online retail business, you possibly can do it from home in your pajamas and not need a facility or staff at all.
The costs of building a start-up company will be divided into six important categories:
- Cost of sale: Product inventory, raw materials, production equipment, shipping, packaging, shipping insurance, warehousing.
- Honoraria:Determining the legal structure for your business (e.g. LLC, corporation), trademarks, copyrights, patents, drafting partnership and confidentiality agreements, attorney fees for ongoing consultations, hiring an accountant.
- Technology costs: Computer hardware, computer software, printers, mobile phones, PDA computers, website creation and maintenance, high-speed Internet access, servers, security measures, IT consulting.
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- Administrative costs: Various forms of business insurance, office supplies, licenses and permits, express shipping and postage, product packaging, parking, rent, utilities, telephones, copiers, fax machines, desks, chairs, filing cabinets – the whole lot it’s essential run your business every day.
- Sales and marketing costs: Printing stationery, marketing materials, promoting, public relations, attending or sponsoring events or trade shows, membership dues to trade associations or chambers of commerce, travel and entertainment for client meetings, sending mailings or prospect lists.
- Salaries and advantages:Employee salaries, payroll taxes, advantages, staff’ compensation.
Take into account the time it takes to get off the ground
One of the key elements of getting an accurate startup budget is determining how long it’s going to take you to get your startup business up and running. That might be completely different if you’re starting a restaurant versus an eBay business. Regardless of your business type, consider all your expenses from the moment you dive into the startup process to the moment you’re able to sell your product or service. If you wish three months from the time you sign a lease to the time you possibly can put up an “open” sign in your retail storefront, determine how much money you’ll need for salaries, electricity, rent (and a mortgage!) over those three months.
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Specific costs for your variety of business
There are many resources you should utilize to know the specific costs associated with your chosen dream startup. Start with the StartupNation community, where you possibly can search for others in your industry and post on the boards asking for help from other entrepreneurs.
Also, make sure to examine out your industry’s trade association. They should have an energetic group of members who are going through or have successfully passed through the startup process, and they’ll often be pleased to share their suggestions with you. You might even get access to sample business plans and checklists for your area of interest market, but most significantly, you’ll learn what hidden costs to observe out for in your industry.
Take every opportunity to network with business owners in your industry, whether online or in person. They will have the best understanding of how the costs of a typical business in your industry balance out across these six categories. With this data, you’ll give you the option to create a reasonable cost estimate for starting your personal business.
Put all the pieces together
Once you’ve gathered the costs of your new business, find a solid money management report template that can even assist you to estimate your monthly money flow.
Above all, be realistic when calculating startup costs for your new business. Your first calculation might not be accurate. Continue to refine your evaluation until you’re pleased with the final number, then do yourself a favor by adding “miscellaneous” to 10% of your total budget. You’ll spend greater than you think to get your dream startup off the ground, and the “miscellaneous” category will cover any unexpected costs.
Originally published April 2006 and updated July 2024.