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How to Estimate Business Startup Costs

Essential for launching any new venture, whether it’s an expansion of an existing enterprise, or a new startup or small business is focused on the creation of a detailed business plan including business startup costs and Conducting market research which is critical to achieve success and a realistic breakeven point between the amount of funds that will be needed, on an annual or monthly basis, and the time required for gaining revenue and net profit back.

Business startup costs are the expenses incurred during the process of creating a new business. It is important to distinguish between these types in line with the predefined short and long term business plan and cash flow availability and arranging a list of business startup costs based on the importance and priorities of the work and the actual need. Here are the types of costs for new business owners that need to be considered:

1. Recurring Vs. One-Time Costs

One-time costs will be related mostly to the startup process, such as the expenses for incorporating a company. Recurring general and administrative operating costs, by contrast, are the regular, ongoing expenditures required to operate the company within the scope of the company’s chosen business.

Commonly, these costs include things such as utilities, salaries and wages for employees, any research and development costs, travel and related expenses, computer support services, and depreciation that may apply to property, equipment or other company assets. These generally do not fluctuate as much from month to month.

2. Core Costs Vs. Optional Costs

Core costs are the most necessary expenses for the company’s growth and development, and it has priority all the time. In other words, payments or purchases must be made now. Optional purchases are made only if the budget allows because of These costs are processes that can be delayed.

3. Fixed Vs. Variable Costs

Fixed costs such as rent payments, real estate taxes and insurance or loan premiums are consistent. These costs cannot easily be changed and are usually paid on a regular basis, such as weekly, monthly, quarterly or from year to year. whereas variable costs can change significantly by week, month or year.

Variable costs are expenses that can change depending on your use of products or services; it is somewhat unpredictable. For example, increased use of your laptop in the work may produce a corresponding increase in your variable costs for the electricity bill and laptop maintenance. Also, if you rely on raw material in your industry, the price is constantly changing due to many factors such as transport expenses, market price, competition and others.

Fixed costs may eat up a high percentage of revenue in the first or second year, but as you scale up in gaining profits and revenues, their relative burden becomes negligible and covered by your profits. It’s much easier to budget for fixed expenses than a variable expense.

All businesses and industries are different, so they require different types of business startup costs. However, there are a few examples that are common to all business types:

1. Office space (Rent, Utilities, parking).
2. Advertising and promotion.

3. marketing materials (traditional and social media).
4. public relations. 
5. Borrowing costs.
6. Employee Salaries and Labor Costs (Salaries, Payroll taxes, Benefits, Workers compensation).
7. Equipment and supplies.
8. Equipment Repair and Maintenance.
9. Incorporation fees and permit fees.
10. Costs of Legal Compliance, Licenses and insurance.
11. Research and development expenses.
12. Technological costs (Computer hardware, Computer software, Printer, Website development and maintenance, High-speed internet access and servers, Security Systems, cell phones).
13. Official Taxes.
14. Administrative and executives costs.
15. Professional fees (Setting up a legal structure for your business (limited partnership, privately held S corporation, publicly trades corporation), trademarks, copyrights, patents, drafting partnership and nondisclosure agreements, attorney fees for ongoing consultation, retaining an accounting department).  

16. Cost of sales (Product inventory, raw materials, manufacturing equipment, Packing and shipping services).