One of the most common causes of new business failures is not having enough cash to meet expenses, especially in the first 6-12 months of starting.
But if you identify and plan for these costs, this is less likely to happen. You can use this guide to help calculate your start-up costs so you can avoid as many surprises as possible.
Common start-up costs
There are many costs associated with starting a business. These may include:
Your exact start-up costs will depend on the type of business you are starting and the industry you are entering. The amount of costs in the different categories can also vary across industries. For example, an online business may have less premises-related costs than a bakery.
Where to start
There are many costs to consider when starting a business, and it might seem daunting trying to plan for every contingency. Even if you know what costs you will be facing, it can be difficult to know how much those costs will be. Below are some tips to help you to plan for your start-up costs.
Check financial statements
Look up the financial statements of any publicly listed businesses in your industry, especially competitors and market leaders. Although these companies will no longer have all the start-up costs you do, you will be able to get a general idea of what they are spending their money on.
It is particularly useful to see how much they are spending on sales and administrative costs as a percentage of revenue. Remember, larger businesses will have the cost advantages of economies of scale due to a stronger buying power. Read more about benchmarking.
Talk to industry associations
Talk to as many business people and associations as possible. There are many websites aimed at new business owners and entrepreneurs. These websites often have active forums and discussions where you can learn from other business owner's experiences, ask questions and get advice from mentors or experts.
Most industries also have an association that provides support and information to businesses in the industry. Find out more about industry associations in Queensland.
Calculate ongoing and one-time costs
Make sure you identify which costs will be one-time costs and which will be ongoing. Some costs you may never have to cover again, while others may recur annually or every couple of years. It is important to identify and budget for this now so you don't get caught out in the future.
Get support and advice
Governments often offer tax and other incentives to help new businesses. Do your research, seek professional advice from an accountant, financial adviser or other professional. You can also visit the Australian Business Licence and Information Service (ABLIS) to find support services tailored to your business.
More support and advice to help you start your business is available if you attend one of our free business webinars.
Learn more about working with business advisers.
Set realistic expectations
As well as thinking about your start-up costs, also consider how long it will take until your business will open its doors and you will be generating revenue. Don't set unrealistic expectations. If you get this wrong, costs can escalate quickly and you can find yourself under pressure to meet new costs without an income stream.
It's better to overestimate than underestimate. Many experts recommend adding 10% on top of your total costs to cover any miscellaneous expenses and unforeseen blow outs.
Once you've followed the above steps to help you research your start-up costs, you can enter your projected monthly and one-off expenses into a start-up costs calculator here. The calculator will automatically calculate your subtotal and total, as well as showing you the percentage for each item (e.g. you may estimate that rent will be 40% of your start-up costs). Remember, some costs may not be relevant to your business or you may need to add other items into the calculator.
© The State of Queensland 2016
The content was first published on www.business.qld.gov.au