Estimating Start-Up Costs For Your Small Business

Once you decide that you are going to start up your own small business, there are many factors and facets of business ownership that you will need to explore. In most cases you have selected an industry that you are familiar with and that you have some experience or knowledge of.

But running any business comes with many more challenges and tasks than just knowing the industry and having hands on experience. One of the first challenges you will face as a future business owner is figuring out your small business start up costs.

small business start up costs

Basis Estimates Across Any Industry

According to the Kaufman Foundation, a 501(c)(3) non-profit who focuses on entrepreneurship and education, the average start up cost of a business in 2009 was $30,000. But they also noted that no two businesses are the same. It is possible to start up a micro business or a home based business for as little as $3,000. In addition, there are ready made businesses such as home based franchise opportunities which can be purchased for as little as $1,000 to $5,000. The key to determining how much your small business start up cost will be is research.

Know Your Expenses

Expenses are defined as the costs involved in preparation to opening your small business. These expenses may include market research, your mileage as you travel to complete your research, advertising, training, wages and fees paid for consulting or professional services that you need as you create your business. In many industries, you will also need to include licensing fees and insurance premiums. In addition, you will need to plan for capital expenditures which are one-time costs to purchase assets such as property, inventory, or vehicles. These are the large items that you will require before you can actually operate your business.

Operation Costs

You will also need to calculate the costs that you will incur as you begin to operate your business. Most likely, you will need to have reserve funds to pay employees and cover day to day expenses until you begin to receive payments from your customers. Realizing that you might be waiting 30 to 45 days to see your first invoices paid, it is wise to have access to enough cash to sustain your new business for at least 60 days. Having this cash reserve will greatly reduce your stress level and will allow you to focus on running and growing your business rather than how you will find a way to pay your employees on Friday.

The Most Affordable Types of Start Ups

If you are considering starting your own small business but you know that funding it will be difficult, then try to focus on a micro or home based business which requires the lowest initial investment. Knowing that inventory, an office space or warehouse space and employee salaries make up some of the largest expenses that a new business faces, try to select a business that is service oriented and one in which you can be the only employee or service provider. This will eliminate your need for a large investment in goods and also won’t require a rental space or money to pay a staff. Some examples might be a cleaning service, a painting business, tax preparation, consulting, pet sitting and virtual assistant. All of these businesses will provide services that you can do by yourself at first and then can grow into a larger business with employees after you have begun to create a steady revenue stream.

Options to Fund a More Expensive Start Up

If you are looking at starting a business which you know will require a larger investment there are several options available to generate those funds. Going to a traditional bank is usually most business owners first thought, but nearly ¾ of all new business owners report that they were unable to secure funding from a traditional lender. The main reason is that a new business has no credit history and, just like a person, that is what banks are looking at to determine credit worthiness. Online lending is a newer option which has less stringent requirements for lending but still might be too difficult for a new business to secure. An angel investor is a person who invests in small businesses regularly and in some cases requires either part ownership in the business or a position on the board of the company to assist in the management. It is a way for the investor to protect their interest in your company and to insure the return on their investment. For smaller start up amounts, crowd funding has become very popular. It is a means of getting a large number of smaller investments in your company via a website presentation. There are many sites which offer this service and all of them have their own process and rules. It is well worth taking the time to explore several sites and their processes before selecting the site that you will use. A final options is to solicit funds from family or friends. The important item to remember here is that this is a business agreement and it should not impede any other relationship that have with the person.

The Magic Number

It is important to understand that there is no magic number when you are thinking about small business start up costs. There are a few general guidelines but specific costs can vary greatly depending on the type of business and the industry. It is also important to realize that even having a large cash reserve does not always ensure a successful business.

Having a great idea, like offering title loans without a job, investing your time in research and creating a detailed business plan are all significant factors in the success of a fledgling start up. What matters the most, no matter what size or type of business you select, is that you are completely dedicated to working through all of the difficult times and experiences to see that your business not only survives but thrives. Your dedication and hard work will pay off in the form of a successful company that will provide you with financial security.

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