Make a list of all the tangible and intangible resources you need to get your business going. The total estimated price of all these items will be your startup cost.
If there’s any item in your estimates that seems unreasonably high, research alternatives. It’s a good idea to include every element you truly need along with a reasonable estimate of the cost of each item, so you don’t run out of money or default on your loans.
Your major expenses will consist of:
Real Estate
There’s often a large gap between bid and asking prices in real estate. If you’re examining real estate costs, call agents and go see available spaces.
Discuss what a final price is likely to be. In real estate, you can never know what price someone will accept until you put a firm offer on the table, so ask about other locations and recent deals.
After you’ve seen a few properties and talked to several agents, you’ll have a better understanding of pricing and the trade-offs on location and amenities. Although this is a time-consuming process, it’ll pay dividends in a better final deal.
Employees and Employee Benefits
For most businesses, salary and benefit costs are a major expense. Your ability to find and keep quality employees can be a major determinant in your ability to deliver a quality product or service to your customers.
To get accurate salary estimates, talk with employment agencies, employees who do similar jobs at other companies, and managers of companies who handle hiring.
Employee benefits include private health insurance, pension plans, stock-option plans, life insurance, social security, and worker’s compensation. Since these can be technical and complex subjects, you may want to seek guidance from a benefits consultant, financial planner, or an accountant.
You must decide what benefits you’ll offer, and how the costs will be divided between the company and the employees.
If you’re hiring people who view their jobs as temporary, it’s best to provide minimal benefits and make their current pay as high as possible. But if you’re hiring people who see their jobs as long-term career moves, then offer them long-term benefits such as pension plans and stock options.
Startup and Capital Costs
Startup and capital costs are dependent on the exact nature of your business. A metal fabricating company will have very different requirements than a home-based computer consulting business.
Once you come up with a list of startup costs, get bids and speak with as many potential sources as possible.
Advertising and Promotion
Advertising is an important part of your initial plan to attract new or additional customers. To figure out what you need for your initial advertising, consider these two issues:
- Where will you find your customers? Do they read specific magazines or newspapers, or listen to certain radio stations? Can you purchase a list of likely customers? The answer to these questions will help you create a basic budget for reaching your market.
- The essence of advertising is repetition. You’ll need to purchase multiple ads, send multiple mailings, and make multiple sales calls before your message is heard by a large share of your target audience. Make sure you budget enough funds to achieve this critically important repetition.
Once you’ve identified your company’s initial requirements, you’ll have a better idea of what you’ll need to buy, invest, or borrow in order to start your business. This information will become the basis for the credible financial analysis that will be an essential part of your bankable business plan.
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