So you have a fantastic idea for a startup company. You have done all the amazing creative work, figuring out what service or product you will provide and who it is made for. But now you must think about the numbers involved in making this dream a reality. What do you do? Well today I am going to give you an overview of how to estimate realistic startup costs.
There are a plenty of costs to account for when creating your startup. You cannot start a company without putting money in first. Without covering those upfront costs, you will struggle to generate revenue. There are a lot of costs that those who are new to startup world can easily overlook. For a simple way to dissect this, I have decided to cut these expenses up into one-time expenses and ongoing expenses.
One-time expenses are self-explanatory, they don’t require regular financial upkeep, but they are important to the running of your startup. Examples of these could include, but are not limited to, incorporation fees, logo design, physical promotional materials like business cards and brochures. You might want to also invest in signage if you are planning on putting a down payment on a rental property to work from so you are easy to locate. These kinds of costs set the foundations for your startup.
Now let’s look at ongoing expenses. These will be regular costs that are often charged monthly for most startups. These can include, rent for the building that is your office, payroll for employees, taxes, insurance payment and many others. These are the kinds of payments that keep the business running month to month. Calculating these costs together can give you a great idea of how much money you will need to get started as a startup.
Assets Needed for Your Startup
There is a sizable bill associated with building the correct number of assets for a startup. Having money in the bank is ideally one of the best assets to have because it is the most versatile but there are other assets you will need to make your business operational and profitable. You will need to make smart decisions about the cost vs value of technology that you invest in for instance.
If your company is an animation company, you will probably need high end computers to run all that 3D rendering software. But if your computational workload is focused mostly around the Microsoft office suite, you will not need to splash out on the best computers available for your team to be productive and generate revenue.
How much is cash required to get started?
Cash requirements is an approximation of how much hard cash your startup company needs to have in its current account when it begins. Generally, your available cash on the starting date is the money you have gathered as investments or loans minus the cash you spend on expenses or assets. This is the last critical part of that bigger puzzle to get you started. As you develop a plan for your startup, watch the companies cash flow projections. If your current cash ends up negative, you will need to either increase investment or decrease expenses.
You are probably wondering how much cash you will need to start working towards your company goals. Well before you come to that figure, many recommend that you raise more cash then you need to keep you afloat if things do not go to plan. It is all too common in business that things do not go to plan so don’t leave yourself in a bad situation because you didn’t plan for the worst-case scenario.
For a good estimate of what you will need, you should calculate the deficit spending you will probably incur during the early months of business. Beyond that, consider how much cash you might need into the future until you are breaking even. This could take many months, even years depending on the scale and ambition of your startup.
To conclude, there are many factors to consider when thinking about the financial side of your startup in the early days. Make sure that you leave plenty of cash headroom for unexpected occurrences. Having a plan is fantastic but you need to be flexible in your approach at the beginning of a startup to keep the numbers adding up. With the right mindset on expenses and assets your startup company should grow and flourish.