Why & How to Calculate Business Start-Up Costs

Introduction

Have you ever wondered how you can calculate business costs and why it is important? This article will be covering all these questions and explain how to calculate start-up costs for your business.

Importance of Calculating Start-Up Costs

Calculating the start-up cost is crucial because it determines how much money you will need to establish a business. It also creates a roadmap for your business and will lay out the goals your business will want to achieve. Calculating start-up costs will prevent money from going towards unnecessary expenses and will help you finance costs for your startup. Once you determine your start-up costs, documenting them will help you get bank loans and investments easier. Establishing start-up costs will ensure you have a strong base for finances, create a financial plan, and help get support from investors and bank loans.

How do you Calculate Start-Up Costs?

There is no set formula for calculating start-up business costs. Each company is unique and will require different things to keep its business sustainable. For example, a company that creates websites may need to put more resources into maintaining its software systems. On the other hand, a clothing company may need to put resources towards activities such as shipping, maintaining physical inventory, and doing housekeeping in their stores. Calculating a start-up cost can be straightforward and is done by documenting all the needed costs to start the business.

Here are a few steps that can be followed when calculating the start-up costs:

1. Create a list of expenses that will be needed to start your business.
2. Once the expenses have been written down, sort them into two categories: one-time payments and monthly (recurring) payments.
3. Then research or calculate costs for each of the payments you listed.
4. After calculating costs, create a 6- to 12-month cushion The cushion is insurance money that helps you prepare for any expenses that were not foreseen. Since sometimes it can be hard to predict costs and creating this cushion will ensure the safety and longevity of your company. Will help you with any additional expenses that can come up that were not expected.
5. Once all the costs are determined, add up all the costs for each payment to get the total amount of money needed for your start-up.

Takeaways

It’s important to understand what costs are needed for your start-up. This helps you be more prepared for how expensive your start-up will be and if the profits made from your start-up will sustain the start-up costs for your business. Calculating start-up costs can not only help with planning your company but can have additional benefits. Each company may have different needs for its start-up and it's important to take all factors into consideration to create the most optimal start-up financial plan for your company.