How to Calculate Startup Cost for Small Business

By Temitayo Ibrahim | 2 min read
13th March 2018
How to Calculate Startup Cost for Small Business

Start-up Cost can be described as the expenses incurred during the process of starting a new business. All businesses are different, so start-up costs may vary from business to business.

Every business at its early stage requires planning and meticulous accounting procedures. However, many start-up businesses neglect this process and consequently struggle to keep their business operations afloat.

Having a detailed idea of the start-up costs required for your business will help you prepare better for unforeseen surprises in terms of costs. The key is to evaluate your business expenses as individual components. 

This article explains how to effectively estimate start-up cost and plan ahead to position yourself for success.

Before starting a new business, the following steps are necessary:

  • Identify your start-up expenses
  • Estimate the cost of the identified expenses
  • Calculate your total start-up cost before launching out
  • Use your start-up cost budget to plan and attract funding

1. Identify your start-up expenses

Most businesses fall into one of three categories: Brick-and-Mortar businesses, online businesses, and service providers. You'll face different start-up expenses depending on the type of business you want to start. While some costs are unique to some particular businesses, there are common start-up costs that most businesses incur. Some of these startup costs include:

  • Office space
  • Equipment and supplies
  • Utilities
  • Licenses and permits
  • Insurance
  • Inventory
  • Employee salaries
  • Advertising and marketing
  • Market research
  • Printed marketing materials
  • Making a website
  • Market research
  • Accounting and legal advice
  • Rent
  • Telephone/internet installation
  • Licenses and Insurances
  • Equipment, Fixture and Fittings purchases
  • Staffing and Wages
  • Raw materials and Stock purchase.
  • Research expenses
  • Insurance, license and permit fees
  • Equipment and supplies
  • Advertising and promotion
  • Borrowing costs
  • Employee expenses
  • Technological expenses

2. Estimate the Cost of Identified Expenses

After listing your expenses, you can then estimate the cost of identified expenses. Some expenses will have well-defined costs e.g. permits and licenses (they tend to have clear, published costs), for other costs that you are less certain of, you might have to estimate their costs e.g. employee salaries.

3. Calculate your Start-up Cost before Launching Out

For any business to be successful, preparation is highly important. Therefore, you have to calculate and record every expense made at the initial stage. One of the most common causes of failure of start-up businesses, is not having enough cash to meet necessary expenses. But if you plan efficiently and effectively, this is less likely to happen. 

4. Use your start-up cost budget to plan and attract funding

Calculating your startup costs helps you plan for your business and attract funding. Funding is a very crucial building block for any startup and to be able to attract funding for your business idea, you need to demonstrate that you have a good knowledge of what the numbers are saying as it relates to your business. Calculating your business also helps you plan and make provisions for expenses that startups often times overlook e.g. operational costs, costs on professional services, costs on permits/licenses etc. 

Benefits of Calculating Startup Costs

Calculating start-up costs helps you:

  • Estimate profits
  • Do a financial analysis
  • Secure Loans
  • Attract investors
  • Help in tax deductions
Temitayo Ibrahim
I am passionate about small businesses and helping them grow; creating contents beneficial to entrepreneurs is one of the ways I hope to achieve this. I am a Marketing Manager at Accounteer. Connect with me via email: tibrahim@accounteer.com
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