How Much Will You Need to Start Your Business?

Shifting from employee to business owner requires an ample amount of planning to make the change successful. More than figuring out whether you’re prepared to start a new venture by yourself, and that your future business’s “big idea” is indeed feasible – there’s that crucial question of how much you’d need to get started.

Depending on the type of business you plan to set up, the exact figures will tremendously differ – getting this calculation accurate is highly important then. Not getting the actual numbers correctly will undoubtedly put you tight in budget even when your business is merely on the stage of taking a pivotal point.

On average, the startup costs for a new business in the US is around $30,000. But that’s just an average. If your big idea is more in line with a micro-business, like a home-based sole proprietorship or a low-cost franchise, your business is likely to be operational with just $1,000 to $5,000.

Being aware of your correct number will help you determine your financing requirements, including what has to happen for you to break even. More importantly, it will aid you in managing cash flow right after the outset of your business.

Know Your Numbers

In most cases, the term “startup cost” refers to how much you’ll need prior to the time when the business begins generating revenue. Startup cost generally fall into two categories: Expenses and Capital Expenditures.

Expenses are the costs required while you’re preparing to launch. Market research, business cards, letterhead, advertising and professional fees for your lawyer and accountant are all good examples—and they’re all usually tax-deductible.

Capital Expenditures relates to the one-time costs linked to purchasing assets. For instance, inventory, vehicles and/or buildings. These costs aren’t usually entailed for deductions, but they may be written off through depreciation. You may ask your accountant for further information on these matters.

If, for any reason, you embark on launching a business and later on decide not to pursue it, none of the expenses incurred will fall as deductions. As far as the IRS is concerned, these expenses would be considered as non-deductible “personal costs.”

Count Your Assets

Accurate predictions on how much it will cost to start your business will need you to include the money you already have on hand to back up your company through its initial year of operation.

That doesn’t mean you’ll need to float the business throughout its first year, though. If you launch powerfully and attracted customers right away, you may not need to – but you must be financially prepared and willing to finance the business in its startup phase. This may include payroll, rent and other necessary expenses until the business become lucrative.

Create a Spreadsheet

Provide yourself with a little clarity by creating a spreadsheet and entering all of your expenses, capital expenditures and assets. Next, try to arrive at approximations for each expense. Doing this will give you a rough idea of where things stand.

Crunch the Numbers

Using your ballpark estimate and this terrific calculator from Entrepreneur.com, you should be able to figure out if the startup costs go beyond the amount you have available in personal assets. If so, go back to your spreadsheet and eliminate or cut down any unnecessary expenses.

For example, is it really necessary that you get that $2,500 identity package from an established graphic designer, or could you settle for a less expensive option until the money starts coming in? Review your list and analyze every cost—consider these choices your first executive decisions as a prospective new business owner.

If you can’t decide about some of the costs, ask around. Touch base with other small business owners, or take part in a business networking group for you to acquire input from those who’ve successfully went through this process.

Leverage Available Resources

Setting up a business is no small effort and obtaining the right budget is essential. Luckily, there is a multitude of resources to help entrepreneurs, including SCORE and your local Small Business Development Center. Contact them – they’re the best people to speak with regarding business matters and they’re surely happy to help.

Realizing how much is needed to start your business will give a clear awareness of your financing requirements and the amount you will need to produce on a consistent basis to reach your break-even point.

The figures will always vary based on the type of business you venture upon, and getting your specific number will require some planning. But if you follow the tips laid out above and make good use of the resources, you must be able to make the shift with full confidence.

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1 Comment

  • This is a great guide if you are looking to start your own online business & well worth knowing about I feel.

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