10 Tips On Estimating Business Start Up Costs

Many business owners do not accurately estimate start up costs for their business. At the very least, this can cause the business owner quite a bit of stress. At the worst, it can prevent the business from ever opening, or cause it to quickly close down. Since each business will have it's own unique start-up costs, there is no universal method for estimating start up costs. The only sure method in existence is to ensure that you have included all of the costs associated with starting your specific business.

1. Start by listing and adding up all the equipment you think you need to start and run your business. Then, take that list and really think about each item, and mark off the items that can wait. Determine what equipment must be new, and what equipment can be bought used. Buy used items, that are in good shape, as much as possible. Determine what items can be leased, instead of purchased. Later, you will want to own all of your equipment outright, but leasing may be more beneficial in the beginning.

2. When calculating the costs of the physical portion of the business (the office or buildings), don't forget to add in fixtures, remodeling costs, and decorating costs, as well as delivery and installation fees for fixtures and equipment. If you are purchasing business property, make sure you include all fees associated with the purchase, including closing costs and taxes.

3. Include expenses for utility deposits, professional fees, and licenses and permits. These fees are often overlooked when estimating business start up costs. Don't forget the fees associated with incorporating your business.

4. When calculating advertising costs, don't forget the costs of logos, trademarks, and other art and graphics that will be used. Think about the costs related to your grand opening, and add these into advertising costs. Pre-opening advertising costs need to be calculated and added into the start-up costs as well.

5. Check on actual costs when possible. For instance, licenses and permits usually have fixed prices, as well as utility deposits. Since professionals usually charge by the hour, those costs can only be estimated.

6. When listing the start up costs for your business, separate recurring expenses, from non-recurring expenses. This will help you estimate your operating costs later on. Some non-recurring expenses may be the purchase of equipment, deposits, and remodeling costs. Recurring, or ongoing expenses may include professional fees, advertising costs, and salaries.

7. Think of ways that you can lower some costs. Call vendors and try to work out deals for lower costs. You should also consider lowering your own living costs, which will enable you to take a lower salary in the beginning.

8. Assume that all costs will be higher than you expected. It may be wise to add 1% - 5% to your final estimation.

9. Have your business plan written before coming to a final estimation for start up costs. Often, the business plan will bring more start-up expenses to light that were not thought of before. Be sure to include the cost of having the business plan written in your start-up costs as well.

10. Include operating capital for at least the first three to six months in your start-up costs. These costs may include salaries for yourself and your employees, rent, advertising, delivery expenses, supplies, utilities, insurance, taxes, maintenance, inventory, professional services, loan payments, and other expenses specific to your business.

Remember, there may be expenses that are specific to your business. Accurately estimating start-up costs takes quite a bit of thought and planning. It is often wise to go over your estimated start-up costs with an experienced accountant.

Click here to return to our Entrepreneur Business Start Up Guide.