Before you roll your eyes, yes, I know the answer to this question depends on the type of business you want to establish and how you want to do it. However, Of course, the answer depends on your business model and your chosen industry.
However, according to a study done by the Ewing Marion Kauffman Foundation, the average estimated cost for anyone to start a business is thirty thousand dollars ($30,000).
Of course, you can start with a lot lower than the said cost especially when it is home-based, freelance or online. Also, you can start higher than the average cost as well, everything depends on you, and what the business needs.
Furthermore, the real question should be, what to calculate to get the specific amount you need to know your start-up costs?
How to calculate a start-up cost
You need to understand that start-up costs are grouped into two kinds of spending- Capital expenditure and expenses. Start-up cost does not only means expenses you need to start a business, but it also shows the expenses your company will accrue before you start making profits; these are the things you need to calculate before you can arrive at an accurate cost.
The capital expenditure can also be referred to as capital expenses; they are the one-time cost of buying assets like vehicles, company’s equipment, inventory, property, etc. the start-up asset do not qualify for deductions; however, you can write it through depreciation when filing and paying your taxes.
Expenses are the costs for your business operations, which occur during the start-up period. Examples of these costs are payroll, office supplies, marketing materials, rent, travel, incorporation fees, legal fees, etc.
Furthermore, a lot of these expenses are tax-deductible, but not all. You can deduct the remaining costs in equal installments over a period of 15 years including the year you opened your business.
Now that you know the different kinds of start-up expenditure, how do you calculate your startup cost?
Define the things you need to spend money on
One of the mistakes entrepreneurs or business owners do is not differentiating between assets and liability, what can forgo and what is compulsory. To efficiently calculate your start-up expenses, you need to create two lists- Assets and expense; know the things you need to treat as assets and costs or liabilities. Be detailed; include the “little things” such as business cards, website development costs, security deposits, brochure, etc. if you do not know how to do all these, you can implore the help of a lawyer, tax adviser, or consultant.
Assign costs to your list
We tend to go wild when assigning costs, it is normal, but we need to be careful because we may overdo it or under prefer for everything. When assigning money to your list, it is better to be realistic, use your experience, and get professional advice or conducting a market survey than guessing your way out of it. You can learn from entrepreneurs who have gone ahead of you, local small business development center to give you valuable yet free advice about how to calculate your start-up costs.
Try as much as you can, not to underestimate your costs; it is better you overestimate your start-up costs than underestimating it. Above all, ensure your costs fit into the available resources, and if the costs are too high for you, try other means to raise capital for your business.
Below are some of the things, you need to put into consideration according to Ben Lobel in his article “How much does it really cost to start a small business?”
- Offices, shop premises, other physical premises and their associated utilities
- Website hosting, different types of virtual premises and technology related expenses such as email hosting
- Vehicle costs including purchase/lease and taxes/insurance
- Licenses, permits and other industry/sector specific legal documentation
- Equipment purchases or rental, maintenance and upgrades
- Stock purchase, delivery, and storage
- Insurance and taxes
- Employee wages and benefits
- Professional services from lawyers, accountants, brokers, etc.
Furthermore, if the bills are piling up you can consider dropping some of the “not so important stuff” for example; can you run the business from home instead of running your business in a separate facility? Will you save money if you subcontract it instead of hiring employees?