“How much money do you need to start a business” is among the most common and important questions which every entrepreneur has in mind. Accurate estimation of a startup can set the foundation for a successful business venture. This article will guide you regarding all possible expenses which you need to know before starting a business. Here are a few things you need to do.
How much money do you need to start a business and what are the determining factors?
To launch a startup, there are two major cost elements: assets and expenses. Assets are material or non-material elements that businesses purchase to carry their regular operations. Examples of an asset are land, building, equipment, furniture, etc. Expenses are regularly incurred costs of a business. Examples of expenses are marketing expenses, salaries expense, administrative expenses, etc. An entrepreneur must have a clear picture of all the possible assets and expenses that will incur in the startup.
Assets Estimation
Estimation of assets is important to know because it will tell how much capital you need upfront. You have to invest in assets prior to the start of your business. Here is a list of few assets that you require before launching your business.
Website
In the modern digital world, a website is among the most essential assets of a startup. In today’s world, no business can survive without a digital presence. Whether you sell products or services, a website is the most important platform where you can convert visitors into customers and clients. A well-crafted and well-designed website can play a great role in the success of your business. The more you invest in hiring professional freelancers for your website, the more opportunity you have to beat your competitors.
Equipment
Businesses require different types of equipment to carry out their operations. Some equipment depends on the nature of the business, and few types of equipment remain the same for all businesses. Machinery, furniture, computer software, and internet connection are few examples of equipment that are required in business operations. Equipment lies in the domain of long-term assets, and normally these are one-time costs. As a startup, it is recommended to buy wholesale or second-hand equipment to minimize the upfront cost.
Inventory
E-commerce businesses are dominating the Globe. If you are looking to supply products, you have to invest in buying suitable products. Your inventory cost as per estimation has to be around 18-25% of your total budget.
Expenses Estimation
Salaries Expense
You have to pay salaries or wages to employees who carry out your business operations. The salaries you pay to your employees will depend on the skill set they possess, but as a startup, you need to be careful with your budget. There are various online tools out there that you can use to calculate the amount of money you can afford to pay to your employees. To keep a good labor force, you are also required to offer perks such as bonuses, paid vacations, and insurance.
Marketing Expenses
When you launch your business, it is very important to market your products or services to your potential customers. For a successful startup, it is essential to pinpoint your potential consumers. There are various marketing tools and strategies you can use to market your products or services. If your budget is low, you can only do social media marketing. SMM is a powerful cost-effective tool for reaching your potential consumers.
One-time vs. ongoing expenses
For a successful venture, you need to have a clear estimation of your ongoing expenses for at least 2 years. Most startups fail because they run out of cash. And this happens because of inaccurate cost estimation. Rental expenses, administrative expenses, utility expenses, and marketing expenses are essential for covering in the short-term.
Essential and optional costs
Essential costs are those expenses that cannot be reduced. In other words, it is that cost that must incur for the survival of a business. Salary expenses, rental expenses, administrative expenses, utility expenses, and marketing expenses are essential expenses. Optional costs can be decoration, promotion from influencers, TV commercial ads, etc. As a startup, it is better not to spend money on optional costs.
Fixed and variable expenses
Variable expenses depend on the selling of products and services. These expenses can be delivery charges, taxes, sales commission, etc. Fixed costs are the costs that don’t change with sales. They are rents, salaries, utilities, etc. A business cannot survive without being able to meet its fixed costs.
Once you’ll calculate all these costs mentioned above, you’ll get the answer that how much money you need to start a business but of you are in the market of buying business beware of any redflags!
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