Estimating Realistic Startup Costs
Businesses spend money before they ever open their doors. Startup expenses are those expenses incurred before the business is running. Many people underestimate startup costs, and start their business in a haphazard, unplanned way. This can work, but it is usually much harder. Customers are wary of brand new businesses with makeshift logistics.
Use a startup worksheet to plan your initial financing. You’ll need this information to set up initial business balances, and to estimate startup expenses. Don’t underestimate costs.
- Startup expenses: These are expenses that happen before the beginning of the plan, before the first month. For example, many new companies incur expenses for legal work, logo design, brochures, site selection and improvements, and other expenses.
- Startup assets: Typical startup assets are cash (in the form of the money in the bank when the company starts), and in many cases starting inventory. Other starting assets are both current and long-term, such as equipment, office furniture, machinery, etc.
- Startup financing: This includes both capital investment and loans. The only investment amounts or loan amounts that belong in the startup table are those that happen before the beginning of the plan. Whatever happens during or after the first month should go instead into the cash flow table, which will automatically adjust the balance sheet.
In general, your Cash Balance on Starting Date is the money you raised as investments or loans minus the cash you spend on expenses and assets. As you build your plan, watch your cash flow projections. If your cash balance drops below zero then you need to increase your financing or reduce expenses. Many entrepreneurs decide they want to raise more cash than they need so they’ll have money left over for contingencies, added Salomón Juan Marcos Villarreal, president of Grupo Denim.