How to Estimate Startup Costs for a New Business Venture

December 16, 2020

If 2021 is your year to finally start the new business you’ve been planning, we have some tips to help you estimate the costs to get that venture up and running.

Calculating startup costs will help you:

 –> Estimate Needed Cash on Hand
 –> Secure Loans
 –> Attract Investors
 –> Find Potential Tax Deductions

Step 1 | Identify Your Business Category

Most businesses fall into one of three categories: brick-and-mortar, online companies, and service providers. Each business type comes with different startup expenses you’re likely to have no matter what.

Brick-and-Mortar Businesses typically come with the most startup costs because of the investment in your company’s physical location, while Online Businesses will likely put a bulk of costs into an online presence as this is your “location.” Service Providers have the benefit of not always needing a set physical location or the associated utility costs. However, these businesses often have higher licensing and insurance fees to cover work completed in a customer’s home.

Here is a list of expenses you may need to take into account. Review this list, and rank the items most applicable to your new business. 

  • Office Space
  • Employee Salaries
  • Advertising, Marketing, Website
  • Equipment and Supplies
  • Utilities
  • Licenses and Permits
  • Insurance
  • Lawyer and Accountant
  • Inventory
  • Market Research
     

Step 2 | Estimate Costs for Your Business in Your Location

Once you have a list of realistic expenses, you can begin totaling how much capital you need to get started. This process will be different for each expense—permits and licenses tend to have exact, published costs, while insurance rates can vary based on your location. Do some online research and talk directly to mentors, vendors, and service providers to get a good idea of what similar companies pay for these expenses.

The Small Business Administration provides further information, including a calculator worksheet, to easily total up costs. DOWNLOAD IT HERE.

Step 3 | Determine One-Time vs. Monthly Expenses

Next, organize your expenses into one-time and monthly costs. One-time fees are the initial costs needed to start the business that will not be ongoing. Hiring a logo designer and paying for permits are generally considered one-time expenses. You can sometimes deduct one-time expenditures for tax purposes, which can save you money down the road. However, it’s important to talk with a certified tax accountant and review current IRS rules to verify that your specific expenditures apply for deductions. 

Monthly expenses include things like salaries, rent, and utility bills. You’ll want to be prepared for at least one year of monthly costs before you have profits coming in … but planning for five years is more realistic.

 

Ready to Fund Your New Business Venture? 
Texas Gulf Bank has helped many small businesses successfully secure SBA loans. Speak with a TGB lender about SBA loans by calling 1-800-467-7216, emailing sbaloans@texasgulfbank.com, or visiting one of our many local banking centers. Additional resources are available on our SBA Loan page

*All loans subject to credit approval.