The process of calculating your startup costs begins before launching your business. Calculating these costs will help you to:
- Estimate profits
- Break-even analysis
- Secure funding
- Attract investors
- Save money on tax deductions
WHAT IS PROFIT?
Profit, also called net income, is the amount of earnings that exceed expenses for the period.
WHAT IS BREAK-EVEN ANALYSIS?
Break-Even Analysis is an evaluation that shows how many sales it takes to pay for the cost of doing
business.
WHAT IS FUNDING AND WHO CAN DO THIS?
Funding is money provided, especially by an organization or government, for a particular purpose.
Investors are organizations or a group of people who give capital to start a business and in exchange for
this, they gain some control of the business and formulate agreements.
WHAT ARE TAX DEDUCTIONS?
Tax Deductions are reductions of income that can be taxed and are commonly a result of expenses,
particularly those incurred to produce additional income.
HOW CAN I EFFECTIVELY CALCULATE MY STARTUP COSTS?
When calculating your startup costs, we typically recommend that you have a 1–5-year projection. You will need to include your fixed costs and expenses. Fixed Costs, or Overhead, stay the same month to month. They aren’t affected by your production volume or sales volume. This is the cost of staying in business. If your fixed cost is $2,000, you know your business will need to make at least that to stay in business. Examples of fixed costs are:
- Rent/Lease
- Property Taxes
- Insurance
- Salaries (fixed pay rate)
Variable Costs, also known as Cost of Goods Sold, is the amount of money you spend to produce and sell your products or services. These costs can fluctuate due to economic demand and purchase cost of products. Examples of variable costs are:
- Food
- Supplies
- Fuel and Maintenance for trucks
- Items purchased for inventory
- Hourly Payroll
Don’t worry, we’ve got you covered! We went ahead and made you a calculation worksheet.
Your start-up costs are expenses before your business generates an income. Different businesses have
different setup costs. Understanding how much it is going to take to start your business can help you to
plan ahead, seek funding and increase your chances of running a successful business.