When you’re starting up a business there’s a lot to think about. Getting a handle on the costs you could face is a great way to prepare yourself for what lies ahead. So, let’s take a closer look at the business start up costs you may face.
Quick takeaways if you’re in a hurry
1. Reviewing your costs for the first six months of doing business can help you establish if you have sufficient start up funding
2. It’s important to over-estimate your business start up costs so that you have a buffer in case they escalate
3. Understanding your costs will allow you to create a cash flow forecast and manage your company funds proactively going forward.
Read on: How to plan your business start up costs
If you’ve decided to start a business you’ve probably got a lot on your mind. There are so many decisions to make, so many possibilities, and it’s difficult to know where to start in the process of getting yourself set up.
It may not be the most glamorous part of running a company, but having an awareness of the cost of being in business can set you up nicely for future success. It’s essential if you want to get through your first year without using up all of your funds. So we’re going to share with you our insights on how to map out your costs for the first six months of being in business.
There are a range of different cost areas that a new business faces, and these can be categorised in different ways. The most important aspect of start up costs is that you capture everything and err on the side of caution – i.e. assume all costs will be higher than you actually estimate.
Set up costs
These tend to be one-off costs or upfront purchases that are essential to set yourself up in business. Try and be realistic about exactly how much these will be: a little desktop research should help you make some estimates. If you can’t find the information then try calling either the supplier or another similar business that may be able help you by sharing some insights. Your business network or mentor may also be able to help.
Examples of cost areas are:
– Buying a building or land
– Research and design
– Compliance costs
– Signage and branding
– Equipment or machinery
– Online costs – website, domain name etc.
– Shop fitting, furniture, decorating costs
Fixed costs are costs that will be incurred on a regular basis by your company. You can usually rely on these repeating over a set time period which makes them easy to predict and plan for. Fixed costs are usually not impacted by your sales volumes – hence the fact that they are referred to as fixed.
The important thing here is both capturing every fixed cost your business may face, and being realistic about the size of the costs. Examples of fixed costs include:
– Utility bills such as power, water etc.
– Rent or mortgage payments
These are costs that fluctuate depending on the sales volumes your business experiences. If your output increases so will these costs. Make sure you start by planning some realistic sales volumes and work backwards from these to understand the impact on your variable costs.
If you’re operating a service delivery business then you may find that you have wages that could be considered fixed costs for your head office staff, and variable costs for your employees as you contract them out. As long as you capture them accurately, don’t get hung up on where you categorise them. The important thing is to acknowledge them somewhere so you can factor in the cost in your budgets.
Examples of variable costs include:
– Raw ingredients
– Production materials
– Salaries (if you’re contracting staff for a service business)
– Stock orders
Create a cash flow forecast
Use the costs that you identify for the first six to 12 months of your business to create a cash flow forecast. This just requires you to add your sales figures so that you’re comparing your income and your costs.
Include any start up capital and you will be able to identify if you require additional funding to help you deal with the costs of starting up your business. Always err on the side of caution and underestimate your sales figures while overestimating your costs. It’s better to be prepared for the worst and surprised by being in a better position, rather than the other way around.
Getting a clear understanding of all the costs that your business can face is an important part of starting up a company. Spend some time running the numbers and you’ll be able to prepare yourself and ensure your business proceeds with the funding it needs.
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