One of the most daunting parts of starting a new business is obtaining the funding necessary to put your vision into motion. Startup costs tend to vary by industry, but having more capital at the start of your business venture can save you a lot of stress while you work to build your business. While there is no magic number for guaranteed success, there are some costs that every business tends to incur, and these can be used to estimate the amount of capital you should have before opening.
Calculate your expenses
All business owners must deal with necessary expenses before they launch. Businesses of all sizes typically incur standard costs for everything from obtaining a business license to purchasing inventory. The Small Business Administration (SBA) advises business owners to estimate expenses first. They explain, "These are the costs involved in preparing to open a business and may include things like market research, the mileage costs involved in researching a location, advertising, training, wages, and any fees paid to professionals or consultants such as a lawyer or accountant." The SBA also recommends calculating the amount of money that you'll need to keep your business afloat in its early days.
Do your research
One of the best methods for determining how much capital you will need to start your business is to benchmark it against the industry. Knowing details including the price of real estate in your area and startup costs such as marketing materials, inventory, wages and equipment are crucial in determining how much money you will need. The AARP recommends speaking with other business owners to help assess your startup needs, stating, "This process is always going to be a best guess, but be realistic and use past experience, research and advice from other entrepreneurs to guide your cost estimates."
Make decisions up front
There are factors that may contribute to your business's cash flow later on. Before applying for a business license, make some important decisions. Choosing to operate from your home can save money in building costs, but if you're expecting to generate a high volume of sales within your first year of operations, it may not be realistic. Accounting for factors like inventory storage, packing, shipping and other expenditures will help you arrive at a realistic startup budget.
The amount of initial capital needed for your small business venture will vary based on a variety of factors. It could range from as little as $5,000 to $30,000. However, doing your research upfront can help you determine the amount that you will need to launch your business and increase its chance of success.
This article was written by Alaina Brandenburger for Small Business Pulse