Quick Guide: This is The Most Important Ritual Every Entrepreneur Should Follow Before Starting a Business
Going into business is a very delicate balance. The ultimate goal of any rational entrepreneur should be to make money, however, people get so fixated on daydreams of earning profits that they often underestimate the fact that business costs money. Lots of it. It doesn’t matter how incredible you think your business idea is, if you don’t have enough capital to finance a robust launch, nothing will rescue your company from stalling. That’s why it’s extremely important to figure out your startup costs through detailed financial projections. The more you understand your startup costs, the more you can protect yourself from making wasteful choices during the infancy of your business.
It’s not that Complicated
The key to identifying startup costs boils down to one word – expenses. Before your business ever opens its doors, you should make a document that lists how many bills you’ll have to pay.
For example, most companies can’t function without paying for:
- Office space.
- Phone lines and Utilities.
- Licenses and Permits.
- Lawyer and Accountant Services.
- Advertising and Marketing.
- Online Presence.
Once you have a full list of expenses which is customized to your unique situation, you can proceed to calculate how much this list will actually cost in practice. This process will be different for each expense you have. Some expenses, like permits and licenses, will have well-defined costs that are easy to look up. However, keep in mind that you’ll also have to estimate other costs that are less certain, such as raw materials. It’s a good idea to research beyond the internet and talk directly to other vendors or service providers to see what companies in your industry pay on average for expenses.
Add it All Up
After cataloging a full tally OF business expenses, organize these expenses into one-time expenses and monthly expenses. One-time expenses are the initial costs needed to start the business. This includes transactions like buying major equipment, paying for permits/licenses, and so on. You can typically deduct one-time expenses for tax purposes, which saves money on the amount of taxes you’ll owe. Make sure to keep track of such expenses and talk to your accountant when it’s time to file your taxes. On the other hand, monthly expenses typically include things like salaries, rent, and utility bills. You should rely on at least one year of monthly expenses as a baseline for your total startup costs, but counting five years is ideal.
In a nutshell, that’s all it takes to figure out your startup costs. Coming up with a bottom-line total of what it would take for your business to function across a five-year period provides a benchmark you can use to make a variety of critical decisions. To begin with, this number makes it clear whether you can afford to start your business or not. It also indicates exactly how much you should ask for when taking out loans or seeking financing for your business. After you’ve clearly defined the expenses that contribute to your startup costs, compile your findings into a printable report and file it for future reference.