The Steps to Estimate Start-Up Costs Before You Launch Your New Business
According to one recent study, start-ups created over two million jobs in the United States in 2015 alone. In fact, by 2018, there were 30.2 million such organizations operating in the country — making up a significant part of the economy.
But having an idea for a product or service and bringing that vision into reality are often two different things. It's one thing to come up with something innovative — it's another thing entirely to avoid the trials and tribulations that the business side of the equation often brings with it. That's why it's so important to estimate start-up costs before you launch your new business — it can help you avoid as many of these issues as possible.
Estimating Start-Up Costs the Right Way
By far, the most important step that you can take when it comes to estimating start-up costs involves first listing out all spending you'll need on the assets that you require for your business to function.
If you're opening a retail store, for example, obviously you're going to need things like shelves. You'll need tables, point of sale systems, light fixtures, so on and so forth. All of these are fixed costs, and they're also essential — you literally can't get by without them. Therefore, listing them out at the beginning of this process is a great way to give yourself a financial foundation for your endeavor.
The same is true if you're opening a business where you will be manufacturing products. You need raw materials from which to produce those products. You'll need to think about labor costs and all the equipment needed to bring your vision for those products into reality. All of this is essential and these are costs that you can't overlook at the beginning of this process.
Next, you'll want to think about the spending that you have to do on expenses. Remember, not everything you invest in will wind up as an asset. If push comes to shove, you can always sell a piece of heavy machinery on a factory floor or shelves in a store aisle. The same is not true for the legal expenses that you'll need to invest in to properly set up your business as an LLC or a partnership.
People also often forget about the costs required to set up a website, for example. Not only do you have to pay someone to develop it to make sure that your branding aligns seamlessly with your target audience, but you need to pay someone to maintain it. You'll need to pay monthly fees to continue to host it on your domain. These things can quickly add up.
Once you have carefully considered all of these factors, you can tackle what is perhaps the most important question of all: how much money are you going to need to get started. Never forget the old saying that "Rome wasn't built in a day." Your successful business won't be, either. Based on the above, you need to know how much money you must have in the bank to account for your expenses in those early days. This is especially true as your start-up begins to gain traction, hopefully generating enough money in sales to cover both costs and expenses moving forward.
It's a difficult process, to be sure — and it's one that many people tend to get wrong. Coming into the situation with a level head and a good idea of your goals enables you to enjoy all the benefits of this process with as few of the potential downsides as possible.
If you'd like to find out more information about all the important steps to properly estimate start-up costs before you launch your new business, or if you just have any additional questions you'd like to go over with someone in a bit more detail, please don't delay - contact us today.
Want tax & accounting tips and insights?
Sign up for our newsletter.
“Bernard and his team at BR tax group are top notch. This is my first year using them after switching from a different local CPA and I didn't realize how much tax info I've been missing. His communication is great. The additional information he provides to maximize tax savings is something I didn't get from my previous CPA. Thanks Bernard”
Frequently Asked Questions
-
You can prepare your taxes yourself, especially if your business is simple.
But once you have contractors, employees, business loans, equipment purchases, mileage, mixed expenses, or growing revenue, things get more complex. At that point, tax preparation becomes a way to make sure your business is reported correctly, your deductions are handled properly, and your records can support what you file.
-
Send anything that shows what your business earned, spent, bought, paid, borrowed, or changed during the year.
That usually means your income records, bank statements, credit card statements, payroll reports, contractor payments, loan documents, mileage records, and prior-year tax return. Also tell me about anything unusual, such as buying a vehicle, hiring someone, opening a new location, or taking out a business loan.
-
Messy books can slow things down. If expenses are in the wrong categories, transactions are missing, or personal and business spending are mixed together, your tax return may not show the right profit. We may need to clean things up before filing, so your return is accurate and easier to support.
-
Possibly, if it was truly for your business and you have proof.
Still, it is much better to avoid this when you can. A separate business bank account and business credit card make everything cleaner. They save time, reduce confusion, and make your records much easier to defend if anyone ever asks questions.
-
Most small business owners can deduct ordinary business expenses like software, advertising, supplies, insurance, rent, payroll, contractor payments, professional fees, travel, and some vehicle costs.
The question I usually ask is simple. Was this expense clearly for the business? If yes, we can look at how it should be handled. Personal expenses should stay personal.
Our Offices
Georgetown
Austin - Arboretum
Austin Downtown
Let's Get Started
Our services are designed specifically for business start-ups, entrepreneurs and small businesses of all sizes. Let’s start the conversation.
Site managed by http://www.webstrategyboost.com/