Estimating the Cost of a Startup

Because the costs of a startup business are often underestimated, new entrepreneurs should consider completing, at a minimum, a few basic financial statements even before they attempt to estimate how much money they will need.

Among the Business Tools is a personal financial statement that we've designed for your use. It's typical of the type of statement that a bank or other lender will want to see before approving your loan. By downloading it and filling it in, you'll get a good idea of the types of assets and liabilities a lender will need to consider in evaluating your personal financial status.

In addition to a personal financial statement such as the one illustrated above, try preparing the following estimates for initial setup and projected monthly costs.

Initial setup costs. Prepare an itemized estimate of how much it will cost to get your business set up. These will all be pre-opening expenses.

Include in your estimate:

purchase/lease and installation of equipment and fixtures utility expenses advertising initial inventory costs real estate expenses (or office rental)

professional costs (accounting, legal, etc.) licenses and fees employee expenses startup supplies insurance

For manufacturing concerns, you may have additional costs related to raw materials, storage, and shipping.

Projected monthly expenses. Prepare an itemized statement identifying both your personal living costs and the anticipated monthly costs of operating the business. Include:

your living costs employee wages utilities advertising supplies, inventory, raw materials

lease or mortgage costs insurance taxes transportation and delivery costs any professional costs and any other expenses relating to running the business

Among the Business Tools is a series of worksheets that will help you map out your startup expenses.

For further discussion of the many details you need to consider in estimating your startup costs, see our discussion of assessing the profitability of a new business.