How Much Should You Personally Cover for Startup Costs
So you finally have the perfect idea for your new business. But how much money do you need to start and grow it? Spending as much money as you want while depending on sales is not an excellent strategy. Instead, follow these guidelines to know how much you should cover for startup costs.
Start Small
Every entrepreneur has high hopes for their new company. But blind optimism, or what others call toxic positivity, may cause you to go bankrupt immediately. Instead, practice healthy skepticism. Keep an open mind about your investments and prepare for possible issues you might encounter in your startup.
Test your idea in an affordable and small way to give you an idea of whether people will enjoy your product or service. If the prototyping and testing have become successful, start planning your budget around it.
How to Conduct a Cost Estimation for Startup Costs
The US Small Business Administration states that starting microbusinesses costs around $3000. Meanwhile, home-based businesses range between $2000 to $5000.
But you also have to consider what type of company you are opening and what your financing needs will be. This step is easy if you have a clear business plan. The must should comprise a market study, organization and management, service or product, and financial projections.
Allow six months’ worth of fixed costs on hand at your startup. Otherwise, you’ll end up like most businesses that failed because they ran out of money. Don’t forget to include personal expenses in your budget if things go wrong.
Another way to save money for your startup is to launch it only after identifying your potential customers.
The US Small Business Administration provides a free sample of startup costs for a pizza place. It considers the following factors for the one-time expenses:
- Rent (security deposit, first-month rent, and utilities)
- Improvement costs
- Inventory
- Miscellaneous (licenses, legal fees, signage, technology, software).
For monthly expenses, factor in the following:
- Rent (monthly rent, insurance, utilities)
- Employee payroll, taxes, and insurance
- Professional services
- Supplies
- Marketing
- Miscellaneous (liability insurance, repairs, organizational duties).
Common Startup Costs
Here are some costs you’ll encounter as you materialize your startup.
- Incorporation fee: $145. Choose between sole proprietorship, partnership, corporation, and limited liability.
- Research expenses: $100-$30,000. You can do the research independently or hire a professional market expert.
- Equipment: $11,000-$125,000. The tools and equipment depend on the type of business you have.
- Inventory: 25%-35% of the operational budget.
- Marketing and advertising: 7%-8% of your revenue.
- Website development: up to $10,000.
- Payroll: 15% to 50% of the budget.
- Insurance: $46-$86 per month.
Choose the Right Funding Option
Besides the amount, it’s also essential to choose the proper funding for your startup. This choice varies depending on what your business can offer and what you want to give up for financing. Some options include:
- Business loans
- Government grants
- Venture capital
- Angel investors
- Love money
- Funding from personal savings.
Contact us today so we can help you with business financing solutions.