As an entrepreneur getting ready to launch your business, you’ll need to get a good handle on your start-up costs.
Start-up costs are the one-time expenses you need to incur before you make your first sale. Start-up expenses are one-time capital (big money) expenses and monthly operating expenses. One-time capital costs might include purchase of initial inventory, purchase of equipment or furniture, improvements to your physical space, development of a website and deposits and fees.
How can you determine start-up costs?
The estimate of your start-up monthly operating expense depends on your guess of how long you’ll be operating your business without any money coming in the door. This is known as “Months to First Sale.” On average, it takes about six months to plan and start a small business, but it really depends on your industry. Also, start-up costs for a home-based service business are usually substantially less than a manufacturing business, for example.
What’s the best way to find out how long your Months to First Sale will be? In our opinion, it’s to ask a member of your industry, or someone who operates a business like yours.
How you decide to pay will influence your one-time start-up expenses. For example, if you need a $30,000 delivery van, you can buy it, which means you’ll need $30,000 in cash. You can also lease the van, which means borrowing money to pay for the vehicle and, therefore, a smaller initial amount of cash for the deposit or loan down payment. This lets you pay over time when your cash flow is likely to be stronger. However, you’ll always end up paying more in total because of interest expenses and built-in fees associated with leasing. Carefully consider your start-up needs!
Here’s an example estimate of a small flower shop’s monthly operating and one-time start-up costs:
|Monthly operating costs:||Monthly||Months to first sale||Estimated cost|
|Salary for the owners||$5,000||3||$15,000|
|Supplies (wire, ribbon, vases)||$2,000||1||$2,000|
Want to learn more about start-up expenses? Check out our 100 Essential Small Business SkillsTM program!