How to estimate startup costs is something you should learn early on at the planning stage.
Many now multi-billion-dollar businesses got started with less than $10,000. Some even with as little as $1,000. Today, some startups are trying to raise millions of dollars before even jumping into business. So, how much do you really need? When is money and excuse and distraction to just getting going and making something happen versus being wise and ensuring you don’t run out of money and just become another statistic on the side of the road?
Here’s how to estimate startup costs…
List Out What You Need When Estimating Startup Costs
Begin by laying out all of your startup needs. What do you need to launch your business, and get it to the point where it can actually bring in money and break-even, where you can stop putting in money out of your pocket to keep it running?
Business Setup Costs
How much will you spend to actually create a business? This includes how much you will spend on incorporating and registering your business and filing it with the state or country agency of your choice. It also means registering your domain name and getting a corporate email address. Don’t forget funding your business bank account either. You’ll need to maintain some level of minimum balance to avoid service charges.
You’ll need to create your brand identity and relevant brand collateral. At a minimum, this will likely include a logo and slogan or tagline. You may even decide to invest in a brand style guide, and invest time on custom social media handles and profile pages.
If you don’t have them, there are some basic business essentials that you will need to operate. A good smartphone is really a must. You might get away without anything else, but you need some type of device to communicate, take good photos, and a screen big enough to view documents and do business on the go.
A laptop with a decent-sized screen is next. Something you can work faster on and that is portable. Don’t forget the internet service. Depending on your business and how much you need to be online you may find the speed and consistency of WiFi a big deal, or not. You probably need a backup or two as well. Especially in an era when there is no guarantee you can run out to a coworking space, coffee shop, or fast-food restaurant to hop online in an emergency.
For most eCommerce businesses, everything else beyond these items is probably pure luxury.
Then, if applicable, consider any necessary equipment you may need to build your prototype and be ready to fill incoming orders. The keyword here is necessary. If you don’t absolutely have to have it, then you probably shouldn’t splurge on it.
Check out this video that explains in detail how to assess the possible costs of setting up your business while keeping expenses down to the minimum.
90% of your success relies on marketing. So, expect a good amount of your startup costs and time to be spent here. Successful startups and successful marketing campaigns all start with a great marketing strategy and plan. A well-researched plan, with effective tactics customized just for your industry and business.
If you don’t have a strong marketing background you probably want to invest in having a professional create this plan for you. Otherwise, you can find the rest of your startup budget being vaporized here as you scramble to redo things after blowing your initial marketing and ad budget. Make sure to add marketing expenses when understanding how to estimate startup costs.
After your plan, you’ll need to have a budget for content creation and any paid ads you’ll be running. Estimate at least three to six months of marketing in your startup costs. You need to be able to afford to continue marketing until you get cash coming back in. If you are in an industry with a really long sales loop, then you need to extend this out even further than you expect it to secure initial customers and cash flow.
If you are going to have a website it is worth having a good one. Even free DIY website building tools are notoriously more complex, slow, and costly than you imagine. Unless you have coding and UX experience this is probably not where you should be spending your time as a founder and business owner.
If you do, you’ll probably end up spending more when you tally up your time versus just hiring someone to do it right the first time. When learning how to estimate startup costs, factor in this expense.
Cost To Build Your MVP
What other costs are there going to be involved in completing your MVP? This may include raw materials, labor, and design.
Keep in mind that in fundraising storytelling is everything and you will need this to cover costs like this. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
12 Months Of Expenses
Even if you plan to raise funding you want to account for needing time to raise and making progress in the meantime. Be sure you have at least enough money to cover payroll, insurances, and to keep the lights and your phone on. But, focus on keeping costs low.
Other Professional Services
Be sure to budget for accountants, lawyers, and consultants. Any retainers you place here will come out of your budget and available cash, even if you haven’t spent it yet.
Will you have to purchase and maintain any inventory? Be sure not to overlook your total cost of goods sold when estimating startup costs either. You have to be able to afford to complete, ship, and deliver your product after you get orders in.
Don’t just guess how much all of these costs will be. You may be way over or under in some categories. Instead, ask for real quotes from multiple providers and fill out your budget with cost ranges.
Ask Your Advisors for Information About Estimating Startup Costs
Your advisors can guide you best on how to estimate startup costs. They may identify ways you can significantly slash expected costs. Or where you may have overlooked pretty big and necessary expenses.
Build In A Cushion For Overages When Evaluating Startup Expenses
Everything costs more than you expect and takes longer than you anticipate. Especially in startup. Build in at least a 20% financial cushion to account for this.
You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.