If you are starting a new business or company, lots of things you will need to keep in mind, there will be a long list to do. How much revenue it will cost to get your startup going is the prime question from all. A successful business person always prefers understanding expenses before getting into the business.
Startup costs are the assumption of the expenses required to start a business.All businesses are different, so they require different types of startup costs.
Most businesses fall into one of three categories: brick-and-mortar businesses, online businesses, and service providers. You’ll face different startup expenses depending on your business type
Calculating startup costs helps you to:
- Estimate profits
- Do a break even analysis
- Secure loans
- Attract investors
- Save money with tax deductions
Calculation of the cost will reduce the risk of failure and increase the chance of success. Underestimating expenses falsely increases expected net profit, a situation that does not bode well for any small business owner.
There are some questions to ask yourself while starting a new venture.
What Does It Cost to Start a Business?
The answer of the question depends on your business model and your chosen industry. Ewing Marion Kauffman Foundation conducted the study on the particular topic and found that the average cost of starting a new business from scratch at just over $30,000. However, it’s not true for all businesses.
Many small businesses, particularly freelance, online and home-based businesses come in a lot lower than this, often needing only a few thousand to get started.
One of the important factors that affects your startup expenses is the business you have chosen, in the other word your business model.
Your business model: When you pick a business model for your startup or new corporate venture, there are many options to explore. But to make it successful you will need to think of some elements – what your products and services are, who your customers are, and what expenses you’re bound to incur.
Your business model also plays an important role to attract investors. Tell the investors about your services, how efficiently you are providing services to the clients, who are your clients. Your expenses are highly dependent on the industry you’ve chosen and the model you’ve built.
Tip:1 Your business model determines your startup cost.
What Common Business Startup Costs you need to consider?
There are common startup costs you’re likely to have no matter what. Look through this list, and make sure to add any other expenses that are unique to your business.
- Office space
- Equipment and supplies
- Licenses and permits
- Lawyer and accountant
- Employee salaries
- Advertising and marketing
- Market research
- Printed marketing materials
- Making a website
Above listed costs can be splitted in the two parts.One-time expenses, ongoing expenses. Once you have your list of expenses, you can estimate how much they’ll actually cost. This process will be different for each expense you have. To become more specific about each expense look online and talk directly to mentors, vendors, and service providers to see what similar companies pay for the same expenses.
TIp:2 Listing your expenses will help you to determine startup cost.
What should be my strategies to afford the startup cost?
It is really important to give a big start to your business. There are some risk factors you will have to take care of. It’s because there’s a period of time before your business makes money when you’ve invested as an entrepreneur but haven’t seen any returns.
Your business model should be powerful otherwise you will end up losing even your personal cost, your mortgage, health insurance etc.You must have a strong business plan to avoid such risk factors.
Here is a comprehensive guide that lists the funding options for startups that will help you raise capital for your business.
Self funding for startup business
Self-funding is the first option when you start funding for your business. When you are starting a business it will be difficult to get funding without first showing some traction and a plan for potential success. You can take help of your savings, your family and friends. However, Self funding is a better option for a small money requirement, if your requirement is much higher from Day 1, it is not a good option for you.
Nowadays, Crowdfunding becomes a popular option for funding the startup. It’s like taking a loan, pre-order, contribution or investments from more than one person at the same time.
How you can get funds from crowdfunding – an entrepreneur puts the details of the business on a crowdfunding platform and shows the business plan to the people. The people who like the plan provide funding to that startup.
Get investors for Your Startup
you can prepare a list of investors and inform prospective investors about your company and the products and services you render. Once you will generate an interesting profile, it will be easy to find investors for you. Once you find them, meet them personally and tell them how your startup stands out among the rest.
Get Venture Capital Investors For Your Business
Venture capital investors provide money to the startup companies and small businesses if they believe that the company has long term growth potential. It is for typically small companies that have growth potential and a capability to expand quickly.
Get money for funding from bank loans
Banks provide financial assistance for companies for startups as well as any other stages of the business lifespan. Startup companies can apply for a loan or working capital or asset backed loans depending on their requirements.the advantage of getting loans from banks than venture capital is, venture capital funds are really costly, banks are easier to approach and whatever the profit and loss is, belongs to you. Banks are having well structured frameworks for the process of funding. This is how getting funds from banks is more beneficial.
Fast ways to get money for your startup
There are some fast ways to get money for your startup. It might not work for everyone. Still we recommend checking if they can work for you.
Pre-sale of your product: One of the highly effective ways to get quick money for your startup is selling products even before you launch them.
Selling Assets: Your assets can help you raise money for a short time when you face a crisis. However , this is a very short term solution. You can buy your assets back once you overcome the crisis.
Credit Cards: Credit cards are also a good option when you need instant money but in a small amount. You can pay money instantly for your requirements and then arrange money once you have some funding available from other options.
TIp:3 You can reduce your startup cost by choosing the funding option wisely.
Which industry can be a better option for me?
When looking to buy a business, many people look for industries they are interested in. While that’s a great approach, we also recommend taking the industry potential into account. Choosing fastest Growing Industries for Small Business is a great idea.
A traditional restaurant model, for example, isn’t great in a world dealing with the coronavirus. If you switch to an online delivery model, however, the startup could have viability. Industry selection is so important when you’re looking to build a successful startup.
If you are planning to start an ecommerce business, it is not a bad idea because you eliminate the need for office space, utilities, and a number of other costly expenses, your risk is low and it is the fastest growing industry that only gets stronger when disruptive change brings the economy to its knees. During this corona pandemic also, this industry has not faced a loss.
Make sure the industry you choose should be fast growing and functions online. That can help you reduce the risk factor.
TIp:4 choosing a fast growing industry which functions online helps you to reduce failure and risk factors.
How can I grow my business fast to recover the initial cost?
Growing a small business isn’t easy. It is one of the toughest challenges many face when they are looking to get out of the 9 – 5 daily grind. The success of your small business depends on your efforts to grow profits using various methods. From employee training to marketing, every aspect of your business deserves attention.
Some points are really important to keep in mind to grow your business.
Quality Customer Service
If you don’t provide quality customer services, it will be difficult to satisfy your customers even if you have a superior product or service if your services will be satisfactory. your customers might even recommend others to also buy from your business.
It takes time to encourage customers to come and buy what you have to offer. But it’s not enough to just get them to buy. You encourage loyalty. You can also provide loyalty rewards like discounts and promotion.
Without a doubt, social media is a very powerful tool, It reaches out to hundreds upon thousands of people at once. Make sure your business is engaged in social media. This helps you stay relevant. Listening to people and reading their comments will give you an idea on how to make them feel more satisfied.
Choose Quality services
It is important to choose quality services for your business to grow. Get the quality service providers for your business. That will help you to get higher traffic to your website and more people will be attracted towards your products.
Tip 4: Choosing right services and the right attitude towards the business helps you to recover start up cost.
Your chosen business model and industry will determine your costs. Understand the economic setup and material running costs involved in your choices. Make a list of what you’ll need and know when you’ll start seeing a profit. To reduce risk, reduce your costs, and choose the right funding sources.
Follow these steps to plan for your startup costs and know exactly where you’re going. When you do, you won’t feel anxious about the period of time between startup and profit!