The total amount needed to start and operate your business is called start-up costs. This is essential because you would not want to be caught short as you start your business and it starts to grow!
Make a list of everything that you need to pay for before commencing your business. Consider the following categories of costs and expenses:
Capital costs include furniture, fixtures, fittings, vehicles, lease of building, equipment and other properties. Capital costs could require a large or a minimal amount of resources depending on the size and type of your business.
These are expenses required to establish your business. It includes registration and permits, legal, and website or logo design fees.
Initial operating expenses
You may not gain enough profit at the onset of your business, so you will need to have adequate cash for operating expenses until your business becomes profitable. Compute your estimated operating expenses for one month, then reserve sufficient cash to cover your business expenses for at least six months.
Personal living expenses
You also need to set aside six months’ worth of cash for your personal living expenses in addition to the six months’ amount of money for your operating expenses.
Estimating the costs
In estimating your costs, be as accurate as possible, however, you should note that it is better to overestimate than underestimate your costs.
Contact important government departments about government fees. Discuss with suppliers their product or service prices. And, talk with property managers about leasing costs.
You may also ask other business owners for advice or tips because there may be unexpected costs especially in the early stage of your business. If possible, set aside additional 10% of your budget for miscellaneous expenses just to guard yourself against unanticipated expenses.
If you’ve followed these guidelines you should be in a good position to make a decision on how to source your funds once you know your startup costs.
- Compute your initial capital costs.
- Compute any upfront regulatory or professional expenses.
- Set aside six months’ worth of cash for your personal living expenses and initial operating expenses.
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James HuyVuong is a CPA and the owner of Your Accounting Partners. Partnering with businesses from start to scale thru to sale.