Setting up a new business can be a costly undertaking. Many small business owners will give this fact up willingly without even realizing what they are giving up in return. Small business start up costs and venture capital costs are the common denominator in most business start up loan applications. If you have a good credit score, you may be able to get a business loan with favorable terms and interest rates. Most start up businesses require venture capital to finance start up operations.
The typical cost range for most small business owners to start a new business is between one and five thousand dollars. These costs will depend on many factors such as the type of industry you intend to enter, the amount of money you have available to invest, your experience level, and the amount of time you have to spend on the project. Your business plan will help you keep focused and avoid making common mistakes.
Small Business Start Up Costs
Most business owners will have a very rough estimate of the startup costs they expect to encounter. They are usually higher than the actual costs because they are estimates based on their own unique circumstances. Unfortunately, these numbers can often be misleading. Unfortunately, the typical cost range for start-up expenses includes some very high costs, while others are lower.
In order to avoid inflated startup costs, it is important to gather as much information as possible about your prospective business before making any commitments. You should also have a written business expenses policy that outlines the types of expenses that will be allowable as well as those that are not. Even if you are planning to use an escrow service to pay for startup expenses, it is still important that you know exactly how much money is coming in and how much is going out each month. This will help you avoid unpleasant surprises when payments are made and help you decide what to do with that money in advance.
Download Small Business Start Up Costs Spreadsheets Template
How to Use the Business Startup Cost Template
The key to putting together accurate numbers is to get into the details. This requires doing detailed research by calling suppliers and providers, searching the internet and listing any and all costs that may be applicable. To help you, the business cost template comes pre-populated with many of the most common expense categories. It also contains additional suggestions and tips for each category to help you make sure you considered everything. Feel free to add additional line items that are unique to your business.
Start by listing the sources of funding that you believe will be available to you in the Estimated column. This would include money supplied by owners and investors, funds available from bank loans or other lines of credit. In some cases you may be pursuing other sources of funds such as grants, endowments or sale of assets.
After all your funding sources have been outlined, start putting in the estimated fixed costs. These costs are one-time costs associated with getting your business up and running. This includes things like leasing space, purchasing assets, stocking up on inventory and getting your legal and marketing issues in order.
Two key parts to the fixed costs are the Working Capital and a Reserve for Contingencies – these can be significant. Any startup is advised to have a Contingency Fund as there are always last minute surprise costs and fees. Consider the risks of your business and set aside sufficient funds accordingly.
Be sure to include enough Working Capital to fund your normal business operations as you grow. Remember that there can be a significant amount of time between when a sale is made and when you actually receive payment. Sufficient working capital is needed to allow you to continue to purchase inventory and pay bills while waiting for payment. More than one growing business has failed because it lacked sufficient working capital.
Monthly Costs – Until Profitable
Many entrepreneurs fail to understand that businesses are seldom profitable the first day. In order to have a clear picture of actual cash required, it is important to estimate your monthly operating costs as well as how many months it will take you to move from the red to the black. The template is setup to assist you in determining these important costs. Simply identify how many months you believe it will take to get up and running and fill in the estimated monthly costs.
Ready, Set, Go
As a time window is provided and all the sources and costs are identified, the spreadsheet will calculate whether you have a surplus or deficit in funding. If you have a deficit, then you will need to figure out if there are ways to scale back your costs or look for additional funding. If you have surplus and are confident in your numbers, you may be good to go.
Keeping Things in Check
The excitement of starting the business can cause entrepreneurs to spend more than they planned. Use the template to keep you grounded. As you collect funds and begin to spend money, record the Actual amounts next to the Estimated numbers. The spreadsheet will calculate whether you are running over or under you estimated numbers so you can make adjustments as you go.
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- Personal Financial Statement Template
- Profit and Loss Template
- Income Statement Template
- Rental Property Cash Flow Analysis
- Free Business Plan Template
Unfortunately, there is no magic bullet when it comes to calculating startup costs. However, there are some common sense guidelines that can greatly reduce the amount of money you spend and will help ensure that you are not paying unnecessary fees. For example, it is a common practice for business owners to list services that are actually optional on their insurance policies. While it may seem like you are providing extra coverage, you may actually be leaving out critical service areas that could use a boost. This is yet another case of common sense being the best policy.
It is extremely important that you understand small business start up costs. As your business begins to grow, you will eventually face more serious challenges that will put greater stress on your budget. By planning ahead, you can avoid having to make difficult choices. If you take a balanced approach to running your business, you will be able to enjoy the rewards of owning your own business without being forced to deal with the perils of financial instability.