Any entrepreneur looking to set up a new business has to deal with the various start up costs that come with such a move. Setting up a business is more than just paying the office rent and furnishing the place. So an aspiring business owner must have an idea of what to expect. It is not unfamiliar to learn about entrepreneurs who started companies and then failed halfway through. This mostly happened because they didn’t account for the different costs of running a start up.
A business plan should include a list of all the resources that your new entity will require. This is to avoid ending up in the above situation. Granted that start up costs can run very high if you are not careful, it is possible to set up shop with what is available. A few smart ideas can help to stretch those startup dollars a bit further. Consequently, it will get you the company you want without ending up in a sea of debt.
What Are Start up Costs?
Start up costs refer to the initial expenses that you have to put in when opening a new company. These may range wildly, depending on the type of business. Space is one cost that all entrepreneurs have to incur whether it’s an office or manufacturing plant. Other generic expenses that you have to factor in include the below.
- Technological costs;
- Employee salaries and expenses;
- Equipment and supplies;
- Advertising and promotions;
- Insurance and license fees.
Entrepreneurs also have to consider elements such as taxation and the costs of meeting certain regulatory standards. For a business that is selling or making products, there are also inventory costs to consider because you cannot start operations without a stocked warehouse. Every business has start up costs. Even e-commerce stores have them. This is because you need to spend on the website and have inventory as well.
Who Needs More Start up Costs?
Some businesses require more start up costs than others. A number of factors will determine this. For instance, a large company will obviously cost more to begin operations than an SME. The industry also influences how much money the initial investment demands.
A manufacturing company, for instance, will require a considerable amount of resources. This is in comparison to a small digital marketing firm. The equipment that an enterprise needs before it starts running will also affect start up costs. For example, a small office may only need several computers. The other basic expenditures could be a printer, and desk. Meanwhile, a packaging plant will require expensive machinery. The costs of establishing a startup will depend on the starting assets. So be very clear about what they are.
How Much Is Spent on Start Up Costs?
Estimating the exact amount that a prospective business owner has to set aside is a bit tricky. Start up costs don’t follow strict patterns. Even licensing fees and taxes will differ from one enterprise to the next. However, some information from the Small Business Administration can help an entrepreneur get a clue. The data was collected from small businesses in different sectors. The average startup capital was just below $29,000. The average in the food service industry, which includes hotels and restaurants, is $125,000.
According to the census, construction is one area where entrepreneurs need very little capital; as little as $5,000. This explains the high number of businesses in this industry. Opening a healthcare business requires an average of $27,000. There also are $14,000-$18,000 for a service company, and $32,000 for retail. These are just rough estimates, of course. But you can conduct research to get more concrete data to work with. Look around the area where you intend to rent space and ask about property prices. If you need inventory, ask about the cost of the materials or products that will make up the stock. Find out about general services such as advertising and IT.
5 Ways to Make Your Start up Expenses More Cost Effective
1. Monitor Start up Costs with a Business Plan
Don’t start looking for rental space before drawing up a blueprint of how to divide that space or do the needed modifications. For example, if it’s a restaurant, be clear if you will do the alterations yourself. You can also find a property that is already designed for that specific enterprise. With a business plan, you know what comes next. This goes a long way in avoiding unnecessary expenditure.
2. Develop a Total Breakdown of Your Expenses
It helps to know how much money your startup requires from the word go. This way, you can create a reasonable budget. Don’t set aside $100 for your ad spend. Then, you might realize later that you may have to shell out more to achieve the desired results. Do the legwork and find out the estimated costs for every item on your spending list. After that, have a compressible budget put together. That way, you won’t spend on impulse. A budget is an excellent money management tool, especially when you need to slash costs.
3. Choose Short-Term Contracts and Collaborations
Since it is a startup, look at getting short-term commitment instead of long ones. This is because they will be more cost effective. If you need suppliers, contract them for a limited period to see how business progresses. Hire part-time workers. If the company operations allow it, thus saving on employee salaries and benefits. Spend only on the critical resources.
4. Check the Legal Expenses Thoroughly
There are plenty of legal protocols that come with opening a new business. So the attorney fees can be astronomical. But you can curb them. Some online companies can help you with the incorporation process at low costs. If possible, you can handle some of the procedures yourself. Then, pay a lawyer for only what is necessary.
5. Comparison Shopping can cut Your Start up Costs Considerably
Whether you are buying a web domain or furniture, never settle for the first few options. Do this regardless of how affordable they may seem. It’s probable that you will find a few others that are willing to offer better deals.
Unwrapping the Start up
The idea of starting a new venture is exhilarating. But the costs that come with it can leave an entrepreneur frustrated. Learn about the different start up costs associated with the company you intend to establish. Take the time to find the best strategies to cut down such expenditure without compromising the quality of the brand.
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