Money is a basic thing needed to start a business. You can start some businesses without investments, but those can only be some startups.
If you plan to start a small or medium-sized business or enterprise, then the money is everything.
So if you have plans to start a business, it’s crucial to know how much money is needed to start that business.
Other than starting expenses, Steve Strauss stresses to keep six months’ expenses in your hand before giving a hit to your idea.
So accumulating all the essential expenses, let’s figure out how much money you need to start your business.
Before that, you should understand how many types of expenses you will spend in your business career.
There are three types of business expenses. After deciding which expenses your business will involve, we shall try to calculate your business starting cost.
When you start a business, you spend money on dozens of things that you don’t spend regularly. Those are one-time expenses.
Examples of one-time expenses are a website, business computers, company car, business registration fee, etc.
Ongoing expenses are those you regularly spend each month. You can call them your monthly expenses.
The best examples of ongoing expenses are payroll, utilities, blogging, rent, marketing, etc.
It’s a type of expense that you spend periodically. An example of these expenses could be renovation or repairing, etc.
So while calculating total costs, you should have all these expenses in mind.
Now we will walk through the different sections of a business to calculate your startup costs.
But keep in mind it’s not as simple it seems to be. The calculations will be a rough estimate because costs may change from state to state.
The reason is that every state has its own defined rules for businesses in the USA. Even the rents and product costs may change in each state due to different labor costs and raw material costs.
Let’s calculate the estimated cost that you will require to start your startup.
Let’s Calculate Money Needed to Start a Business
Every business has its own starting costs. It totally depends on what you do.
The money you required to start your business could be just $3000. Or it can be a million-dollar business.
That’s why it’s vital to be clear about what you want to do. And what are minimal requirements for your company?
There are two main business types that you can start,
- Traditional business
- Online Business
In both cases, the expenses will be different, and hence the money needed to start will also be different in each scenario.
Again in these types, the expenses will vary depending on your company size, and many other things.
That’s why we need your help to figure the exact amount you need to turn your idea into reality.
Keep a pen and paper along with you so that you could calculate your costs.
List of business costs
Here is the list of the essential expenses that usually all SMBs and enterprises pay. So if you start an SMB or enterprise, you should pick the right ones for you.
After that, we will find out your essentials costs.
- Product/Services costs
- Marketing budget
- Renovation & Repairing
- Daily expenses
Once you pick essential ones for you, you can easily calculate the estimated cost for your business.
Tip: In the beginning, pick essential ones only so that you could get an idea of the minimum money required.
There are some business structures in the USA. Each structure has its different fees. Pick one for you and we will get you your registration fee.
- Sole proprietorship
- Limited liability company
Suppose you are not sure which structure you should choose. Then it’s better to understand business structures first.
The reason is that every structure has its benefits. You might get a better one for you.
Once you are clear about which model suits you, you can get a registration fee for your state.
If we generalize it, depending on your business structure, your company’s registration fee could be $100 to $1500.
Write it on paper.
No matter it’s a product or a service, it has its expenses.
If it’s a product, then each item has its unique manufacturing price. A spoon and an air conditioner have different manufacturing prices.
So there are many things to consider before understanding product costs.
The following two basic questions can get the idea.
- How much will it cost you for each item?
- How many items shall you produce each month?
Be very clear about your product costs, and get actual data from the market to see how many items you can sell.
After that, it will get you the exact product cost.
If it’s a services company, you need experts to play their role.
The following two fundamental questions will help you estimate the costs.
- How much do your field experts charge?
- How many experts will your company require?
For example, a software engineer will have a different salary than a freelance writer. It’s better to take an idea of an average salary of a professional.
There may or may not be professionals on your payroll, but there will always be labor costs.
To estimate your payroll, you can look at any business structure similar to yours.
How many expenses do they spend on it? Or at least, how much labor do they have.
Once you know your figure, you can multiply with $40000 per annum. It’s the minimum wage for workers in the United States.
However, it will still be an estimated cost, and the actual cost will be higher.
If people don’t know you, you are nowhere.
That’s why every business has a solid marketing budget.
Your marketing budget depends on your business model. Sometimes, it’s crucial to invest in traditional marketing. It can be Billboards, NewsPaper and TV ads, etc.
However, it’s better to keep both with you.
Once you are clear, you can get an idea of the cost of the marketing.
If it has confused you to know how much it will cost you. Let me make it easier for you with some useful data.
- Retail stores usually spend 3% to 4% of their sales on marketing.
- Most businesses spend 2% to 5% of their revenue on marketing.
- Well-established companies spend more than 7% of their income on marketing.
Rent is an ongoing expense that you will pay each month.
You must be clear how much it shall take on your desired location. Its rent will vary from place to place.
You might already have an idea what’s average rent of a building in your required area. You can use that data.
Additionally, if you are not a big company, you can utilize shared space. Shared space will cost you $3000 annually for each 5.
Renovation & Repairing
Thus you will meet some repairing and renovation expenses periodically.
It can be your building, machinery, gadgets, and many other things that will get your attention after a while.
It will also include the visits of an expert who will check your machines weekly or monthly for safety purposes.
So you must add this to your list.
No matter how small or big you’re, you need furniture. It could be your table, chair, and AC or furniture for a building.
However, it’s a one-time investment.
Utility bills are ongoing expenses, and you should get an idea of how much it will take by competitor analysis.
On average, businesses spend $400 a month on utility bills. To know the exact figure, you should research your market.
It’s supposed to be an essential part of your business. And it will cost money.
The money will depend on which insurance company you choose and how much you invest in it.
It can be a couple of $100 a month.
A computer is an essential requirement for any business.
However, how many do you require totally depends on your business nature.
So once you are clear about the figures, you can add them to your costs.
You know, it’s the technology era. If you have no plans to add a website to your business, you’re losing large marketing. Whoever visits you wants to see you online for confidence and ease.
Website cost will depend on how much you spend on it. It could be your simple store that you can host on cheap hosting, or it could be an expensive store.
You should add up to $1000 annually to your total business cost.
There are dozens of daily expenses that you have to pay regularly. It could be tea, meal, paper, pen or such small things.
So it depends how big or small you’re, and hence these expenses will be.
Summing up all the costs mentioned above, you will easily realize how much do you exactly need to start a business.
Suppose you are done with everything. Let us know in the comments what your company nature is? In which area do you live? And how much did you estimate your costs? So that others could also know how much money do they need to start that specific business.