While it may be true that you can never really calculate the costs of starting a business, it’s quintessential that you give it your best to make an accurate estimate. This is important for so many different reasons. First, it will help you make an accurate profit estimate, seeing as how you’ll see just how far away your break-even point is and how much money you need to put away every month in order to reach it.
Second, in order to attract investors, you’ll need to have it all figured out. There’s nothing that investors hate more than entrepreneurs who believe that they can just “wing it”. What they need are hard cold facts and numbers (the more accurate the better). While there are more investors in Australia than ever before, the same goes for the number of startups, which is why staying competitive might be quite important.
In order to help you get a grip of it, here are several tips to help you calculate the costs of a startup launch. To make things both easier and more effective, we’ve decided to take a step-by-step approach.
1- Make a list of all your expenses
Before you start adding the costs, you need to make an elaborate list of all the expenses you will encounter. For now, you’re just listing, you’re not adding any kind of figures (this will come later). First, you need to consider the cost of renting or buying the office space, getting all the licenses and permits, paying for the insurance and paying fees for relevant services like lawyers, accountants and market analysts.
Once you have this covered, you need to focus on logistical issues such as utilities, employee salaries, office equipment and office supplies. Your inventory needs to be fully stocked if your business is to start working at its full capacity. You will also need some marketing-related issue like an advertising budget, printed materials and a website. This alone makes up for the bulk of your expenses but remember that it’s always good to have some side-capital tucked away so that you can improve your cash flow.
2- Start making calculations
Now that you have the list, you can start adding numbers next to each item. Make sure, however, to include three prices. The first one needs to be the lowest possible price that you can get. The second one needs to be the highest potential price and the third should be the most likely price (industry standard). Remember that with a higher price, you’re usually getting higher quality, as well as some other perks. For instance, when getting office supplies, deciding to go for Winc Australia stationery will also add to the prestige of the office. As for the general tips, ideally, you should aim to gather the funds that are equal to the higher price, even though you intend to stay as far away from it as possible. Intended target should always be close to the median.
3- Cutting costs
As soon as you have the full list, with costs added, you’ll get the opportunity to start finding ways to cut some of the costs. There are so many ways for you to cut costs. For instance, instead of leasing the office, you can have your entire team telecommuting. You can also have some people telecommuting while having others in a shared office space.
Sure, this way the efficiency will drop, but you’ll also get your cost reduction. Also, you don’t have to buy an office when you can just lease it. Keep in mind that while in the long run this might not be frugal, it reduces the immediate cost of a startup launch.
On the other hand, there are some areas in which it’s quite dangerous to try cutting corners. For instance, you can’t skimp on your marketing or your analytics. You also shouldn’t try to save money on supplies required for product manufacturing, seeing as how it will diminish the overall quality of service, thus harming your business more than it’s helping it.
Also, you shouldn’t be too cheap when it comes to employee salaries. This will only make your talent hiring and retention efforts more difficult. In other words, you need to learn how to tell the difference between points where it’s safe to cut expenses and where such an idea would do more harm than it does good.
4- Are there some costs that can wait?
Previously, we’ve discussed the fact that there are some trends that may be more frugal at launch but that these added costs may catch up with you later on. Spending money on assets, usually, has to be done right away, whereas spending on expenses comes in stages. You don’t have to get that many supplies right away but can rather play it close with your inventory. This is definitely not the smartest of ideas, yet, it’s a method you can use to make it through the rough patch.
Related Reading: Must Haves and Can Waits for a Startup
Of course, this list is far from complete and you would also have to consider all the industry-specific expenses in order to know the full cost. Also, when it comes to running a business, optimism is a necessary trait for success. When it comes to financial planning, it might be misleading, even outright dangerous. Therefore, while calculating your costs, it might be for the best if you were to prepare for the worst-case scenario right away.