You have come up with a great idea for your own business, one that you are confident will be financially, personally, and professionally fulfilling.
You are ready to start developing your business plan, doing market research, and testing marketing ideas. How much money will you need to bring this idea to fruition? What kind of finances will you need to get things started and how much will you need on a monthly basis going forward?
These financial questions are often ones that keep entrepreneurs up at night, worrying about how much money they will need to be viable and successful. It is a classic entrepreneurial dilemma: do I have enough money to start my own business?
Fortunately, most up-front and ongoing costs can be identified at the start of your ideation. Doing the work to build out your budget will bring you peace of mind and a foundation to use when pursuing small business funding. Here is a closer look at the framework you should use to determine your business costs.
Why Knowing Startup Costs Is Important
Startup costs give you and others a clear idea of what it will take to operate your business. Too many small-business owners underestimate their costs and end up playing catch up, undermining their growth or forcing them out of business. There are several benefits to projecting these costs:
Questions to Answer Before Building Your Cost Estimate
Once you have affirmed your business idea, consider the following before making a cost estimate projection:
While the answers to some of these may change as you assess your financial needs, defining them at the outset helps to provide some clarity.
Understanding Cost Types
Not all costs are the same. Understanding some of the different types of costs and what is included in these cost categories is important.
One-Time and Ongoing Costs
One-time costs are those that are necessary upfront to get the business going. They may include franchise fees, company incorporation filings, land or building purchases or a one-time equipment purchase. Ongoing costs are those that are paid regularly and are usually predictable and consistent month after month, such as rent or utility expenses.
Fixed and Variable Costs
Fixed costs are those that are intractable and must be paid no matter what the revenue outlook is. Rent is considered a fixed cost. (Costs can fall under multiple type categories). In the early days of a business, fixed costs are likely to consume a larger portion of your revenue. By contrast, variable costs are those that are dependent on other factors, such as customer volume. For example, if you own a hair salon and you begin to attract more customers (which is a good thing!), you will need to buy more care products, shampoo, shaving cream, wax and cleaning supplies.
Essential and Optional Costs
Essential costs are those that are critical and necessary for the company’s continued operations and growth. Optional costs are for things that are nice to have but not necessary.
A Closer Look at One-Time Expenses
The following are some of the most common one-time expenses new small businesses are likely to incur:
Some of these expenses are purely one-time. Others are one-time expenses to open the doors and ongoing expenses.
Looking At Ongoing Expenses
Once the doors are opened and the business is up and running, the expenses do not stop. You will need to factor in the following expenses as part of your monthly costs:
Finding A Partner
Developing a new business is an exciting venture. Taking the time to thoughtfully plan out your costs helps to make the rest of the process that much easier and fulfilling.
Small businesses are the lifeblood of the American economy. That is why Benetrends specializes in supporting small-business owners.
We pioneered the Rollover as Business Start-Ups (ROBs) funding model, which helps entrepreneurs use 401(k) and other retirement fund assets to start and grow businesses. While we provide retirement plan servicing, we have partnered with providers to help you with credit card processing, legal services and business insurance. To learn more about how Benetrends can support your business, calculate how much you need to start your business.
Our mission is to make every Benetrends client our champion. For over 35 years, our Rainmaker Plan® has been tested and proven to work, providing a means for more than 17,000 entrepreneurs to achieve their dreams of business ownership, creating both jobs and prosperity. We are so confident in the Rainmaker Plan design that we stand fully behind our work, backing every client with our Rainmaker Guarantee.
Information provided by Benetrends Inc. is not intended to be used as legal or accounting advice, or as the sole basis for investment decisions, nor should it be construed as advice designed to meet the particular needs of an individual investor. Please seek the advice of legal or tax professionals, as appropriate, regarding the evaluation of any specific information, opinion, advice or other content.
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