One type of cost you need to estimate is called operating expenses. These are incurred by a business no matter how much product is sold. These are regular expenses like rent, salaries, insurance premiums, advertising and marketing costs, travel, interest, and miscellaneous expenses. In other words, the day-to-day costs you’ll expect to see when running your business.
You’ll need to estimate operating expenses in order to get a complete profit picture of your business. Operating expenses can be calculated per day, month or year.
Close your eyes and imagine you’re opening a flower shop and you want to figure out your operating expenses. Now, open your eyes and behold your sample estimated operating expenses:
Store rent (2,500 sq. ft. @ $30/sq. ft./year) $75,000
Florist salaries $60,000
Part-time florist salaries (x2) $50,000
Total annual operating expenses $246,200
Of course, you can’t be sure of actual costs until you’ve actually chosen a location, developed your marketing strategy and opened your doors. For now, though, this rough estimate of operating costs is enough to see whether it’s clear sailing ahead, or trouble brewing.
When estimating your start-up expenses, operating expenses and cost of goods sold, be realistic. Make sure to estimate all costs as well as the time you’ll have to pay those costs before your business starts making money. And try not to get carried away with your start-up cost estimate — think of only what you’ll need to spend to get to your opening day.