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11 Startup Business Costs Examples

start up business cost examples

If you’re starting a business, it’s important to have a handle on the costs that will be involved. Startup business costs are the sum of all “one-time” payments required during the initial launch of the business.

Understanding how to calculate startup costs is essential for every aspiring business owner. Whether you plan to fund the business from previous investments, financial loans, business grants, or personal savings, it is great to have a well-defined idea of everything you need to get started.

Read on for some of the factors to consider as you calculate startup business costs.

How to calculate startup business costs

The following are essential factors that determine the total startup business costs. Evaluating each of them before launching the business can help with proper planning and financial success.

1. Equipment.

The cost of purchasing equipment is one factor that must not be overlooked when calculating startup business costs. The type of specialised equipment required varies for every company setup and often influences the other startup costs that you need to factor.

For example, a fashion company would require a set of machinery different from what an automobile company needs. The type of machines required would also determine additional expenses like maintenance costs of purchased equipment.

One challenge is how to determine the total amount of equipment required and understanding how to minimise equipment costs, especially since the business might have low orders at the start, and nobody wants to start with a very wide loss margin.

One way to keep a handle on this as you find your feet is to consider renting some equipment instead of buying it all outright.. In addition, consider refurbished machinery as a more budget-friendly option if you trust the supplier. There is always room to later upgrade business equipment to new ones.

2. Licences and Permits

The next factor to consider is the type of licence and permit that your startup requires. For example, a taxi company must ensure all its drivers have updated licences.

Similarly, restaurants must obtain certain food safety certificates and adhere to strict environmental compliance. It is your duty as a prospective business owner to research what your industry demands.

Understand that the licences and permits come at regulated costs that vary depending on the business. For instance, a restaurant owner would not pay the same amount as a construction company owner. They do not even require the same certifications and that is why it is pertinent to conduct proper research on licensing as you calculate startup business costs.

Are you unsure about the specific business permits to obtain? Check out the official website of your resident country. Another recommended option is to get a lawyer who guides you on the latest practices and expected standards within that industry. They will help to verify your full compliance with local and national regulations.

3. Insurance

Insurance is another essential factor that makes up the startup business costs formula. Think of insurance as protective gear worn for safety purposes. You know an accident might not happen but still wear it anyway because what if it does? That is exactly how insurance works!

You cannot predict the future, but having a good insurance plan serves as guaranteed extra protection should something bad happen to the business. Commercial building insurance, product liability insurance, and cyber and data insurance are just some of the common ones available.

The best insurance coverage is one that protects against financial losses from unanticipated issues with the product or service rendered.

Remember to periodically review existing insurance policies as the business expands to make sure that you still have the most appropriate cover in place.

  1. Rent and Office Space

Rent and office space are the next factors to consider after discussing equipment, licences and permits, and insurance costs. You might already know that rent takes up a significant portion of startup costs and that explains its significance.

The cost of your rent depends on the business location and size of the premises. For instance, a physical store in London in the United Kingdom would be more expensive than one located in Cardiff in Wales.

The available office space is another significant factor to consider. As a prospective business owner, you must plan for possible expansion. Will the current office space be sufficient to conveniently run the business in the next few years?

Asking yourself these important questions as you calculate the startup business cost would help with better planning. That explains why some business advisors propose working from home as a startup. Expansion and renting a physical office can happen as the business starts making profits.

5. Stock

A common worry among startup businesses is how much stock inventory is best to launch the business. There is no perfect answer but having a very small stock could potentially make the business lose out on excellent “one-time” offers.

Similarly, starting with a very high inventory means exceeding available market demands and tying up useful cash that could have been utilised for other business startup needs.

It’s best to observe the expected demand levels for other small businesses and slightly exceed that. Experts advise to have a little more stock in case a business opportunity arises.

Some effective business stock strategies include:

  • Having a minimum of three months of one-year stock
  • Investing 17-25% of sales on the high-demand inventory
  • Maintaining a “safety stock” inventory

“Safety stock” relates to excess inventory kept as a backup to prevent running out of stock. For a new business, calculating your stocks as part of the startup business costs can be manual but should be automated as the business expands.

6. Marketing

Marketing is another crucial factor to consider when estimating startup business costs. Firstly, determine the amount of advertising necessary to reach the target audience for your business. Have you even determined whether to use online marketing, physical marketing, or both?

For instance, compared to a walk-in store, a Shopify store would need to invest in the best SEO techniques and website design. Thus, assessing your business model is essential in determining how much your marketing will cost as part of your startup budget.

When choosing your advertising strategies, make sure that your marketing budget and sales are in balance. In the beginning, sales may be quite low, and you don’t want to lose money. Only consider TV and radio advertising if you think your product aligns with a more general audience and go for more budget-friendly options like social media initially.

Regardless of which marketing method you include in the startup business costs, the criteria for success is measured by how much target audience the advertising medium provides. A well-defined and actionable marketing plan can make a difference between two startups within the same industry.

7. Utilities and Energy Bills

Your startup business cost is not complete without considering the cost of energy and utility bills. Some prospective business owners might argue that working from home reduces the need for extra rent and energy bills, but that is not entirely true.

Starting your business from home implies higher energy usage when you include business operations and increased time spent at home. So, does that mean working from home does not reduce startup costs?

No! It reduces the starting business costs, especially the absence of rent for physical stores. Besides, you can invest in low-energy consumption appliances to reduce utilities and energy bills.

Every penny matters when it comes to calculating and minimising startup business costs. Therefore, consider all cost minimisation avenues such as green tariff plans. Money saved up on energy bills can be invested into other parts of the business.

8. Technology

The ever-growing impact of technology has made it essential for almost every business startup. Whether it is a physical or online store, your business requires technology via phone support and computers.

Online startup business costs even involve more technology such as web hosting, live chat systems, and licences for software applications. Investing in the right technology can improve productivity via automated processes and even widen your market presence.

In addition, technology allows for better customer support services and business branding. However, a complete technology startup budget includes frequent maintenance costs, continuous data security checks and periodic software upgrades.

An additional benefit of investing in technology as start-up business costs is keeping up with the latest industry practices. Technology also provides access to performance metrics that help the business owner to make more informed decisions.

9. Legal Costs

Legal costs accompany any specialist advice you get from a lawyer regarding the setup of your business, and isn’t an area to skip!

Ignorance during contract setups or failures to adhere to stipulated regulations is not an excuse and could attract very heavy fines. Having a lawyer to handle legal matters and compliance issues saves you the stress.

Legal costs are even more important for business setups with complex business structures, lots of contract agreements, shareholders and employees. Therefore, hiring a professional lawyer is advised instead of trying to cut costs by finding free services.

One-man business start-ups might not require professional legal help at inception but it becomes necessary with time.

10. Tax and Accounting Costs

Talk to any financial advisor and they will tell you to take tax and accounting cost calculations seriously. The business aims to make a profit but that is only possible when you correctly monitor every income and expenditure, effectively calculate taxes, and minimise your taxable income.

That might sound simple until you realise you have to combine it with the rigour of managing a functional business. That is why you need a professional accountant. While hiring a professional accountant might seem like excessive spending, it is a case of spending a little to save more.

The money invested in employing the services of an experienced bookkeeper or accountant ensures better budgeting and financial foresight. You have a more organised cash flow inventory and filing taxes is made easy. In addition, finances are better tracked to allow growth and financial security for unexpected events.

Of course, managing your accounts yourself saves the extra accounting cost. But what about the extra time it demands? Have you considered how productive you would be if you outsourced it? The benefits of outsourcing to a professional often outweigh other concerns.

11. Employees

Calculating employee cost in the business start-up budget is as important as other previously mentioned factors. This needs to cover salaries, training costs, insurance and other employee perks and benefits.

Another important component is office space. How many employees do you plan to hire? Would there be extra administrative costs?

Final Thoughts

When starting a business, one of the most important areas to get right is finances. You will need to carefully budget and plan for start-up business costs before you do anything else. This will help you to determine if the business is viable.

Factor in equipment, licensing, insurance, rent, stock, marketing, utilities, technology needed, legal fees, accounting fees and employee costs. Whilst you may not know the exact costs upfront, it’s important to build a buffer into your calculations so that you’re prepared should things be more or less expensive than you first expected in those crucial first few months of business.

Whilst minimising costs is a good idea where you can, your biggest focus should be on making sure that you’re fully compliant with any regulations in your chosen industry and have a solid plan for business growth.

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