9/29/2021

Small Business Advice

Cost of Starting a Business in 2021

Figuring out the cost of starting your business can be difficult but you have to plan early for success. This article will help you avoid unforeseen costs.

Tim Wu
Tim Wu

Head of Growth

Table of Contents

Attaining financial independence and the flexibility that comes with being your own boss are some of the 

reasons that might attract you into starting your own business. However, one of the main challenges is the cost of starting a business. The costs vary with the size of the business you are intending to establish even though some costs are inevitable and are universal. 

 

Figuring out the cost of starting your business can be difficult but you have to plan early for success. This will help you avoid unforeseen costs. In this article, we are going to guide you on how you can estimate the startup cost for your business. 

 

Start Your Business but Start Small 

 

It is okay to have high expectations and be optimistic about the growth of your business. However, you should be aware of potential pitfalls and prepare for some of the unforeseen issues that may arise in the process. Before investing a lot of cash into your business you should prove the concept and determine if there is a demand. Look into first creating a minimum viable product. This can help you get a better grasp on the potential costs of your business as well as if there is a demand. Don't invest too heavily in a business idea that you are still testing.


Estimate the Startup Costs for Your Business

 

Experts advise that you should have funds that can cater for expenses of up to six months at startup. You should also never underestimate your expenses as they might rise with the growth of your business. Underestimating your business expenses can be the biggest cause of your businesses' downfall if you are not careful about it. 

 

When estimating the cost of starting your business, there are a few different things that you should put into consideration, we have outlined them below:

             

  • Determine the recurring expenditures and how often you should expect to pay them (yearly or monthly.etc)
  • Consider if each item is either a fixed or variable expense. Expenses like rent, administrative fees, and utilities are considered fixed as they are consistent from month to month. On the other side, packing and shipping fees, inventory, and sales commission are variable costs as they depend on the sale of goods.
  • Evaluate how essential each of your expenses are. Your startup budget should be realistic and cover only the necessary expenses.
  • Consider adding extra funds, at least 15% for unexpected expenses.
  • Check the financial statements of other similar or related businesses and see what they are spending on and what their average expenditure is. If you don’t have access to financial statements try to figure it out by working backwards from the publicly available data you have. You can find what kind of prices similar businesses are charging their customers as well as get an idea of what kind of salaries they pay their employees by checking job boards.
  • Identify startup assets - These are costs for purchasing inventory/equipment required to set up the business. These include vehicles, computers, office furniture, and other necessary equipment. 




Why Calculate Startup Cost?

 

Depending on the size of your business, you need to know the startup costs you require. Having an accurate or rough estimate of the startup cost will help you with a number of things:

 

Establish a firm foundation - Managing the startup costs for your business is impossible until you calculate them. Without knowing what your costs are it will be hard to establish a foundation to grow your business on as you will not know what areas of your business you can and can’t afford to spend on.

 

Building your financial plan - Calculating your startup costs, is a vital element of a business plan. It will provide a reference that will serve as the basis for your future reviews. 


Help prepare for emergencies - Knowing your costs will help you get through emergency situations and stay afloat. Unforeseen events like the covid pandemic can put a halt to your business but if you know your numbers you can make a plan to survive through it.


Avoid spending too much - Without knowing your startup costs it could be easy to spend too much. Especially when your business is just starting out and you might not have as much consistent revenue coming in.

 

Attract investors and secure loans - Lenders and potential investors will need to understand your business. So, you must be ready to answer their questions and that is where knowing your business startup costs come in. 

 

Project Your Cash Flow

 

Cash flow is the money running in and out of your business. It is another essential aspect that you should consider. As a future business owner, you should at least project the cash flow of your business for the first three months. By doing this, you are on track to maintaining a healthy financial business environment. Your business will not be able to kick off if you are not realistic with your cash flow and debts especially when the costs accumulate. 


Where Do You Get The Finances For Your Business Startup Costs?

 

After you have drafted your business plan and know the amount of money you need to start your business, where do you get the money from? Your decision on where to get the money from will affect your business in the future. These sources can be personal savings, contributions from family and friends, loans from private investors, or government grants. 

 

Many startup businesses are funded by owner's savings. Some companies decide to combine different sources to raise the funds. You can also approach money lending firms and check if you qualify for a loan if the other means prove to be futile. 


Final Thoughts      

 

If you have a business idea, it is important to evaluate the risks associated with it and the startup costs. Making sure you carefully look into all the risks and costs will help you avoid investing your money in the wrong places. You can start your business no matter how big your idea is provided you have a plan. When you are aware of the startup costs, your business stands a better chance to succeed as you have already set a budget for it.

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