Nothing can kill a great business idea and a growing business faster than running out of cash. To get off to a great start in any venture, you should make sure that you have enough funding to cover all your start up costs, including many that people tend to overlook.
Common Budget Busters
Most entrepreneurs understand that that some money is required to start a business, but there are a group of costs that people always tend to forget. These include:
- Installation fees
- Permits and Licenses
- Taxes – especially Self Employment taxes
- Business Insurance
- Working Capital
- Monthly Expenses
Small Costs – these will add up quickly
To help identify these and other hidden costs, we suggest you use Vertex42’s Free Business Start up Cost Template. This free template is pre-populated with all the most common costs for starting small business and home-based businesses. It provides ideas and suggestions for items and expenses you may not have considered. It will also help calculate how much cash you will need to operate your business until you become profitable, an expense many people ignore. There is even a customized worksheet tailored specific for the unique costs of starting a restaurant.
Whether you start with the categories already filled out in the Business Start up Cost Template, or create your own list, start the costing process by identifying all of the categories unique to your business. Simply delete categories that don’t apply to the business and add any that may be unique to your situation. In the case of home business, many of the categories can be removed.
Key to Accurate Estimates
Once you have identified all of the costs categories for your business, you will need to make estimates of the actual costs. The key to these estimates being accurate, and your business being properly funded, is in the details. Go through each cost item and do detailed research. Call one or more suppliers and ask for quotes. Look prices up on the internet. Visit government offices and websites to get detailed cost numbers. The more time you spend on getting correct figures, the better off you will be. Odds are you will run into additional costs specific to your business. Be sure to include these on the Business Start up Cost Template.
Working Capital and Reserve Fund
Make sure in your calculations you have sufficient funds for Working Capital and a Reserve Fund. Consider these the insurance for your start up business. Without them, you will not be able to grow your company or be able to withstand unexpected expenses.
Working Capital is what you will use to actually grow your business. It allows you to purchase larger volumes of inventory in preparation for higher sales. Lacking sufficient Working Capital can really kill your growth potential.
Your Reserve Fund is like an air bag – it protects you from unforeseen situations. Without it, one large unexpected cost can set your entire business into a tail spin, forcing you to choose between paying payroll, suppliers, utilities or other operating costs. While you may survive, you will certainly miss out on opportunities to grow your business.
As part of detailing your start up costs, you should also identify your sources of funding, whether they are from investors, loans or grants. The Vertex42 Business Start up Cost Template has a location for this information and uses it to help you determine if it’s time for kick-off or time to go back to the drawing table.
There is no doubt that in order to succeed in any new business you must have passion. Just make sure your excitement doesn’t force you to underestimate the true cost of starting a business, leaving yourself and your business unnecessarily exposed. Start out with a solid list of cost categories and then research the costs to get good estimates. Doing this will help you be prepared financially, allowing you to put your time and effort into growing your business rather than worrying about money.
Note: Check out the Resource links on Vertex42's free Business Start up Cost Template page for additional help and tips for starting a small business.