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How to Estimate Startup Costs for Your Small Business

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Estimate Startup Costs

Today, it’s easier than ever to start a business. Due to the Internet, it’s possible to reach a global market, as well as access supply chains and even start businesses that don’t require the sale of products.

Any business requires startup funds, though. If you aren’t properly prepared for those costs, and ready to estimate them for your new company, your business and your personal finances can suffer.

Understand What You’re Selling

Different types of businesses have varying financial requirements. If you plan to offer your services as a freelance writer or graphic designer, you have very few costs. Your startup costs might only include a good computer and broadband Internet. On the other hand, if you plan to sell handicrafts, you have to pay for the supplies used and make sure you have storage space for excess inventory.

Other types of businesses require even more startup capital. If you need special equipment to manufacture products, or if you plan to import products, your costs will be different to start. You might need to buy or rent a storefront. Perhaps you need to hire workers. You might even need specialized equipment or programs for your company.

Before you start, carefully consider what types of business you will have, and what you expect to sell. Figure out whether or not you can do the work out of your home, or whether you will need outside premises. Also determine how many people you will need to hire. For a startup, you might be able to get by with only yourself and family, to save on personnel costs, but other costs might not be so easy to get around.

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Study the Industry

Once you have an idea of what you will need for your business, and a clear idea of what you hope to accomplish, you can begin to figure out what costs are common in your chosen industry. Some of the places you can look for information on costs in your industry can include:

  • Small Business Administration
  • Trade associations
  • Message boards and forums
  • Guilds and professional organizations
  • Government offices overseeing an industry
  • Wholesalers

An online search can usually give you a solid idea of what to expect in terms of costs and expectations, but you can also get more information by actually talking to other business owners. Attend trade conferences or your local Chamber of Commerce. There are great places to network and learn more about your desired business.

Most business owners are willing to share information with others. Talk to business owners at different events, and try to find out what to expect, from how to get lower prices on supplies, to how much it cost to engage in a number of activities from marketing to hiring employees. Talk with other business owners about the challenges, as well as costs involved. This sort of real-world experience can be enlightening for your own business. Even if another business owner’s company doesn’t match up exactly with yours, you can still get a good idea of what startup costs you are likely to run into.

Don’t forget to talk to others with knowledge. While you definitely want insider information from the industry, you should also talk with others who might have an idea of what costs you are likely to incur, as well as help you work out other issues. Accountants, attorneys, business consultants, and others can help you learn about the costs associated with creating a business organization, licensing your company (where necessary), and the requirements of the law when it comes to compensating employees.

This might seem like a lot of research, but it’s necessary. If you want an accurate estimate of your company startup costs, you need as much information as possible. You can even use the aid of online calculators to help you estimate your costs, based on the information your discover about your industry.

What are the Current Economic Conditions?

One of the most difficult realities of starting a business is the fact that you might have a great idea, and the ability to execute it, but current economic conditions can sink your dream. Consider the economy, since that might impact who can afford to buy what you’re selling, as well as the length of time it will take to become profitable.

Being able to sell online can help you reach a wider market, and reduce your dependence on local economic conditions, but you will need to have a clear idea of what to expect in terms of website development and hosting, as well as other costs related to putting your company online.

Realize that a slow economy probably means bigger reserves. You’ll need to estimate higher startup costs for your company in order to account for the fact that it might take you longer to turn a profit. Good planning, and a realistic view of your company’s startup costs will help you overcome these difficulties and succeed at your business.

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About Miranda Marquit

Miranda is a freelance writer and professional blogger specializing in financial topics. Her work has appeared in numerous media, online and offline. Her blog is Planting Money Seeds.

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