If you are planning to start a business, it is important to determine your budgetary needs. Since every business is different and has its own specific cash needs at different stages of development, there is no universal method for estimating your startup costs. Some businesses can be launched on a smaller budget, while others may require considerable investment in inventory or equipment. Additional considerations may include the cost to acquire or renovate a building or the purchase of long-term equipment.
To determine how much seed money you need to start, you must estimate the costs of doing business for the first few months of operations. Some of these expenses will be one-time costs such as the fee for incorporating your business or the price of a sign for your building. Some will be ongoing costs, such as the cost of utilities, inventory, insurance, etc.
While identifying these costs, decide whether they are essential or optional. A realistic startup budget should only include those things that are necessary to start a business.
These essential expenses can be divided into two separate categories: fixed and variable. Fixed costs are expenses that do not vary with sales volume such as rent, utilities, administrative costs and insurance costs. Variable costs fluctuate directly with sales volume, such as purchasing inventory, shipping and packaging costs, and sales commissions. The most effective way to calculate your startup costs is to use a worksheet that lists both one-time and ongoing costs.