Case Study: Startup Costs

Suppose you want to open a sub sandwich shop located in Cedar Rapids, Iowa. Here's a look at the startup dollars you'll need to get your business off the ground.

In this example, the business will be opened in an existing building, so construction expenses relate to remodeling, rather the initial construction. Because most types of food preparation are equipment-intensive, fixtures and equipment are the largest component of the start-up costs.

Startup Dollars Needed
Beginning inventory	$1,500	Includes food per bid from distributor
Building construction	$0	Leasing existing building
Cash	$300	Only need cash for register
Decorating	$0	Included in remodeling below
Deposits	$500	Includes $400 electric and $100 phone
Fixtures and equipment	$15,500	Includes bids on all equipment
Franchise costs	$4,000	Fees, training, signage, and supplies
Installing F and E	$2,500	All per bids
Insurance	$3,000	Bids from the insurance carrier
Lease payments	$7,500	This is three months' lease payments
License and permits	$750	Includes sales and restaurant permits
Miscellaneous	$1,000	Design fees on remodel
Professional fees	$2,000	Cost for attorney to set up a corporation
Promotion:	$1,500	Quarterly newspaper ads
	$1,200	Monthly hotel room "town guide" listings
	$600	Six flyer handouts
	$500	Frequent diner program
	$2,500	Electric exterior sign
Remodeling	$8,000	Cost of leasehold improvements per bid
Rent	$0	Facility is being leased above
Services	$500	Set up accounting system
Signs	$1,000	Bids for inside and outside signs
Supplies	$500	Cost of office and employee supplies
Unanticipated expenses	$5,485	Computed 10 percent of the total cost
Total startup costs	$60,335	This is to get to day one of the business

The startup costs for this sub shop total $60,335. Remember that this is only the dollars needed to get to Day Number One of opening your new business. You will still have to compute the amount needed to get you through the first few months of the new business.

When seeking financing for the new business, you should match asset life with length of loans if possible. For example, on equipment with a five-year life, it would be preferable to obtain a five-year loan that matches the equipment life. See getting a loan for the steps necessary to obtain financing for your new business.