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Starting a business? Calculate Your Startup Costs.

July 8, 2019

The Small Business Administration (SBA) reports that 30% of new businesses fail during the first two years of being open and 50% during the first five years. If you don’t want to be included in this group, place a critical focus on calculating and planning for start-up expenses and projections for your initial two years. Most businesses fall into one of three categories: brick-and-mortar businesses, online businesses, and service providers. You’ll face different startup expenses depending on your business type.

Be realistic at the beginning, and start with enough money that will last you to the point where your business is up and running, and cash is actually flowing in. Trying to stretch your finances at the beginning may indicate that your business may never get off the ground.

Calculate your business startup costs before you launch. The key to a successful business is preparation. Before your business opens its doors, you’ll have bills to pay. Understanding your expenses will help you launch successfully. Calculating startup costs helps you:

Estimate profits
Do a breakeven analysis
Secure loans or attract investors
Save money with tax deductions
Understand how much cash you will need
Create a budget

Expenses differ. Some expenses will have well-defined costs. Permits and licenses tend to have clear, published costs. You might have to estimate other costs that are less certain, like employee salaries and marketing costs. Look online and talk directly to mentors, vendors, and service providers to see what similar companies pay for these expenditures.

Add up your expenses for a full financial picture. Once you’ve identified your business expenses you should organize your expenses into one-time expenses and monthly expenses.

One-time expenses are the initial costs needed to start the business. Buying major equipment, hiring a logo designer and website developer, and paying for permits, licenses, and fees are generally considered to be one-time expenses. You can typically deduct one-time expenses for tax purposes, which can save you money on the amount of taxes you’ll owe. Make sure to keep track of your expenses and talk to your accountant when it’s time to file your taxes.

Monthly expenses include things like salaries, rent, and utility bills. You’ll want to be able to cover at least one year of monthly expenses, but planning for a minimum of two years better.

Add up your one-time and monthly expenses to get a good picture of how much capital you’ll need and when you’ll need it. Use your startup cost calculations to get startup funding or have enough money put aside to carry you through the first two years. Then find a bank that will assist you with cash flow.

What are the standard start-up costs for a small business? There are common startup costs you’re likely to have no matter what. Look through this list, and make sure to add any other expenses that are unique to your business. Then create a budget.

Office space
Equipment (computers, copier)
Supplies
Communications (telephone, internet)
Utilities
Licenses and permits
Insurance
Lawyer and accountant
Inventory
Employee salaries and benefits
Advertising and marketing
Market research
Printed marketing materials
Website

Talk to the small business experts at First Bank of the Palm Beaches to plan for your new business.