Starting a business is exciting, but it can be easy to underestimate the costs involved. Without adequate capital reserves, you may find yourself in danger of running out of money. To avoid this pitfall, it’s essential to take a rigorous approach to researching and planning your expenses.
Use our Startup Expenses worksheet to guide you through the process of estimating your expenses. Begin by drawing up a list of everything you’ll need to purchase, including tangible assets like equipment and inventory, as well as services like remodeling and insurance. Research multiple vendors for each category of expense and consider factors like price, terms of payment, delivery, reliability, and service.
Be sure to add a reserve for contingencies and explain how you arrived at that amount. You’ll also need a cash cushion to cover expenses while your business gets off the ground. Do a rough estimate of your working capital needs for now, and come back to refine it after you’ve done a 12-month cash flow projection.
Once you’ve estimated your startup costs, consider how much capital will be needed to get your business off the ground. Determine how much you’ll put in yourself, how much will come from partners or investors, and how much will be borrowed.
If you plan to use your business plan to secure a bank loan, include a section on collateral. List the assets you’ll offer as collateral and provide an estimate of their value, being prepared to offer proof of your estimates.
By taking a rigorous approach to estimating your startup costs, you can ensure that you have adequate capital reserves to support your business and achieve your goals.