Evaluating Your Startup's Initial Costs

By Fernando Berrocal

If you are a new startup entrepreneur and trying to estimate how much money you will need,  you’re likely asking yourself the following question: How much funding will you need for your new startup's launch? There is no need to worry too much regarding this subject; there is a simple method for unraveling the riddle of early-stage costs, and establishing a precise picture of the money that your business will require. In this blog post, we will go over how to evaluate your startup's initial costs.

Startup Costs

Startup Cost Categories

Keep in mind that various small businesses will have different forms of launch fees when discussing the different cost categories. It relies on the requirements and resources that the startup founders of the particular startup already have with them. For instance, a furniture retailer could require a storefront person to always be available, personnel to manage the business, and workers trained to run the equipment in a warehouse. In a whole different scenario, if you run an internet retail business (e-commerce) from home, neither a location nor any employees are necessary. There is also no need for transportation, so your startup team can be benefited. There are other costs involved such as equipment and internet connection but they will cost less in the long run. 

Venture Capital

These initial costs for any startup business that is starting may be broken down into different categories with their set of examples. These six main categories are the following:

  • Marketing and sales expenses: Different types of marketing materials, "public relations" with important stakeholders, sponsorship of different kinds of events or trade shows, membership dues to trade associations, lead or mailing lists.
  • Administrative expenses: Anything else you need daily to run a startup business, including different kinds of business insurance, regular office supplies, different types of licenses and permits, express shipping, product packaging, parking, rents, utilities, phones, and other communication devices.
  • Technology expenses: Information Technology (IT) consulting, high-speed internet connection and web servers, cybersecurity measures, business computer hardware and software, printers, cell phones and tablets, website development, web development, and maintenance.
  • Professional costs: Establishing your organization's legal form such as a Limited Liability Company (LLC) or Corporation is the main cost to take into account. There are other professional costs involved such as registering your trademarks, copyrights, and patents. Also, there is preparing partnership and non-disclosure agreements, paying legal fees for continuous advice, hiring a business accountant, etc.
  • Sales expenses: Inventory costs for finished and semi-finished products, raw materials, manufacturing tools and equipment, packing, shipping, shipping insurance, warehousing, and other additional logistics expenses.
  • Business wages and rewards: Salaries for full-time and part-time employees, freelancers, payroll taxes, work benefits, workers' compensation, work rewards. 

Evaluating Initial Startup Costs

Accounting for Time When Launching Your Startup

Determining how long it will take you to launch your new business is a crucial step in obtaining an accurate beginning cost estimate. Depending on your sort of business and the sector you're targeting, an estimate is sufficient rather than a specific date. For example, if you're starting an e-commerce business (as opposed to something more traditional, such as a restaurant), it can be extremely different to set specific standards. No matter what kind of business you have, budget for every dollar you'll spend, from the minute you start the starting process until you're ready to start selling. Calculate how much money you will need for your employees’ wages, electricity, and rent over the few months it will take.  It might be quite a bit of time between the moment you sign a lease and the time you put an "open" sign on your storefront.

Finding out Your Specific Costs by Business Type 

There are a variety of tools available for you to learn about the precise expenditures related to the dream of starting your own business. Check out the trade association for your sector as well. It should have a vibrant community of participants who are actively navigating or have completed the startup process, and they should be willing to provide you with advice. In your market area, you could even have access to example business plans and checklists, but more significantly, you'll learn about the hidden costs to watch out for.

Make the most of any chance you have to do networking with other business owners in your sector, whether that be online or in person. The greatest knowledge about how the costs of a typical business in your sector balance out across those six categories will come from their experience. With this information, you can calculate the approximate cost of launching your startup with your variables.

Above all, when estimating launch expenditures for your new business, be as reasonable as possible. The first calculation might not be that accurate at all. Once you're pleased with the final result of your analysis, do yourself a favor and add a miscellaneous line item for 10% of your overall budget without hesitation. You'll spend more than you anticipate to launch your ideal startup business, and the "miscellaneous" category will pay for any unforeseen expenses that you might have along the way.

Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.

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