Starting a new business can be a difficult task if you are not clear about the costs associated with the startup. A well-balanced budget is the only way to have a clear path.
This article will not discuss the entire budget, but the costs only and specifically; how to calculate all the costs involved in setting up a new business.
Not everything that you spend on business is your expense; the things that need to be in your mind are managing the assets and the expenses of your startup. To calculate the costs well,you must understand the Fixed and Variable Costs first.
Know the Assets: the items that are the largest and the longer term used objects. You cannot operate your business without them. These assets imply the purchase of the building and also of the necessary items like chairs, desks, tables, shelves, startup cash and so on. Amount spent on buying assets is normally categorized as Fixed Costs.
Each business has its own specific asset list. The assets can be sold later on in case the business fails.
Know the Expenses: items you buy one time and you cannot sell back. This involves site renovations, various marketing types, logo design, legal work and licenses. Some expenses are one time while others are recurring. the one time expenses are those without which you cannot start business and so they are also the part of Fixed Costs.
Expenses that need to be paid on recurring bases are known to be Variable Costs; for instance, salaries, inventory, marketing material, bills, rent, travel expenses and so on.
Once you know the fixed and variable costs, follow these steps.
Step 1- List all the fixed costs.
Step 2- List all the variable costs and multiply each with 6. (As we assume the business to be starting returning after 6 months. If your business plan focuses on making the business earning in a different time slot, replace the number with 6.)
Step 3- Add Fixed costs with the sum of variable costs.
The best thing before starting spending on the business is to talk to;
1- an attorney for a detailed cost breakdown for the legal works.
2- suppliers for materials.
3- marketing & advertising firms for promotion.
4- asset valuation consultants for assets.
5- business consultants for a business overview.
They will help you with dividing the costs into these two categories. You need to get things in the right way as it will have a great impact on your taxes.