Estimating Launch Expenses for Your Small Business
Are you planning to start a small business but unsure about the launch costs? Estimating your start-up expenses is crucial to secure funding, attract investors, and forecast when your business will become profitable
Thoroughly Calculate Your Launch Expenses:
A key ingredient to a prosperous business venture is preparation. Even before your business officially begins operations, there are bills to be paid. Knowing your expenses will help you achieve a successful launch by avoiding costly surprises.
Estimating your launch expenses will enable you to:
- Project your profits
- Conduct a break-even analysis
- Obtain loans
- Attract investors
- Save money through tax deductions
Identify Your Launch Costs
Most businesses fall into three primary categories: physical (brick and mortar), internet-based (online), and service providers. The costs to start each business type will vary accordingly.
While there may be unique expenses, below is a list of standard launch costs to consider:
- Office space
- Equipment and supplies
- Communications
- Public services
- Licenses and permits
- Insurance
- Legal and accounting fees
- Inventory
- Employee salaries
- Advertising and marketing
- Market research
- Printed advertising materials
- Website creation
Estimate Your Expenses
Once you have a comprehensive list of expenses, you can begin calculating how much they will cost. The process will differ for each expense.
For example, some expenses may have clear costs like permits and licenses, while others like salaries may require further research. You can consult advisors, vendors, and similar businesses to estimate your expenses.
Get a Complete Financial Picture
After identifying your expenses and estimating their costs, you’ll want to separate them into one-time expenses and monthly expenses.
One-time expenses are costs necessary for launching your business like buying equipment, hiring a designer, and paying for permits and fees. These expenses can be tax-deductible and can reduce your tax burden. Keep a record of these expenses and notify your accountant when it’s time to file taxes.
Monthly expenses can include salaries, rent, and utility bills. Calculating at least one year of monthly expenses is recommended, but creating a five-year account is ideal.
Add your one-time and monthly expenses to determine the total capital needed and when it’s required.
Secure Financing with Your Start-Up Cost Estimate
It’s best to create a formal statement of your anticipated start-up costs that is clear and easy to understand. This statement will be used by investors and lenders to evaluate the earning potential of your business by comparing expected costs with projected earnings.
