What are Startup Costs and How to Calculate Startup Costs?

What are Startup Costs and How to Calculate Startup Costs

Startup costs

Every business needs to work on costing for its day-to-day operation. Most established businesses have figured out a rough idea about the costs that they require. Whereas for a startup, Business owners need to start from scratch as they have to start from basics. Start-up costs are those expenses that get your business up and running. It includes costs for business operations as well as costs for setting up a new business.

Business owners figure out a business structure that works best for their business operations. All businesses structure doesn’t cost the same. Every business has unique requirements Be aware of setting up costs of the businesses entity that choose. You should do extensive research on the various expenses that your business might incur. For example, the cost of setting up a home-based consultancy business is completely different from setting up a brick-and-mortar business.

The First step of projecting your business costs for your startup should be drafting a clear-cut plan. It will guide you to achieve your goals and objectives. Every business has different requirements and all these requirements come with a price. Having a business plan will help you stay organized and project a detailed overview of running your business. Your business plan should include financial projections that can estimate your costs, revenue, profit, etc., for at least 3 years.

Having a business plan is also essential for getting funding from investors. Not every start-up will generate profit right away, it might take some time for the business to pick up. You should be aware of your business plan, expenses, projected profit, etc. to get a loan or get an investor to fund your business.

There can be both one-time expenses and ongoing expenses while running a start-up business.

One-time Expenses and assets

  • License and Permit fees
  • Equipment and supplies for office
  • Office furniture
  • Down payment for rental property.
  • Vehicles
  • Incorporation fees

Ongoing expenses

  • Rent
  • Payroll
  • Taxes
  • Inventory
  • Loan payments
  • Utilities
  • Marketing

How to calculate startup costs

The best way to calculate the startup cost is to draft a budget tailored for your business. You can list out all the one-time expenses and the ongoing expenses. After paying up all your initial costs, it is recommended to have at least six months’ worth of expenses upfront. This will be a safety net for your business as the initial profit margin might be below.

The IRS does not consider startup costs as capital expenditures but keep in mind that if your startup cost is less than $50,000, you can deduct $5000 on your taxes.

You should allocate a specific share for your fixed expenses. This can make your operation much easier. Cutting unnecessary costs can save your hard-earned money. Managing a startup business can be challenging. You will have to invest a huge chunk of your time and efforts in it. You should develop the idea or business objectives way before you incorporate a company. Financial Management can be one of the major challenges faced by startup entrepreneurs. They should have a realistic idea about how much money they need for business and estimating start-up costs accurately can be helpful.

Hiring a business consultant or virtual CFO can get you going a long way. Hiring an experienced virtual CFO can help get valuable insights into your business and guide you to make sound decisions. They can ensure that your business is compliant with government policies. It is much more efficient than hiring an in-house full-time CFO. It can expensive and hard to manage.

If you’re a startup business owner who is looking to accelerate their business growth? Get in touch with Agile e-Platform to know more about our virtual CFO services that will help you to manage your finances.

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