Need to figure out how much it will cost to get your new business started? 

In the beginning, most new business owners are motivated and industrious. They brainstorm ideas, decide on a business structure, write up a business plan, and register a business name. Some of them lose energy, though, and eventually give up on their big dream because they failed to set realistic financial goals and were unable to handle the costs. 

With all of the startup excitement, it can be easy to gloss over or miscalculate important details, which can put their new business at stake.  Write your financial plan as if big investors will be doing their due diligence on your company, even if you have no plans on finding outside capital. Come up with practical estimates of your startup costs, because they really are pertinent for success.

Business Startup Budget

Think of your startup budget like a projected cash flow statement. How much is your beginning balance? What do you expect to bring in for operating cash and how much to expect to spend each month? How much working capital you will need (to pay your bills) while your business is starting out, and how long it will take you to have a positive cash flow (earn more money than you are spending). 

Incoming Cash

To figure out how long it will take you to have a positive cash flow, you need to know which services, products or solutions you are selling, including prices, packages and estimated sales. This is where the basic business planning legwork comes in handy. Try to work out the entire sales funnel so you will be able to track the steps and adjust your sales forecast as you figure out what the average conversion rate at each step is. Does the funnel start by creating awareness with a networking group, social media, blogging with on-page SEO and/or other marketing activities? Do you follow up on prospects with opt-in email newsletters, eBooks, introductory calls? Do you give opportunities with free consultations, trial offers or promotions?

Outgoing Cash

Estimate how much cash will be going out each month. Make an analysis of all outgoing money with all cost with fixed and variable costs, including taxes, rents, and loans.

For your expenses, consider whether you will be leasing or buying equipment, rent and utilities, loans, wages for subcontractors or employees, marketing and advertising initiatives, taxes, accounting and bookkeepers, and anything else you can possibly think of. Subtract all that cash going out from your estimated income and you will have some insight into how much revenue will be made each month.

Startup Costs Worksheet

Make up a detailed worksheet so that you can see a real overview of your startup needs. What are all the purchases you need to make in order to open for business? Be as detailed as possible and include everything to get a better picture of what you will need. Consider everything from business cards to garbage cans to shipping supplies.

Even though not all small business startup costs are the same, you can always categorize them into the following categories: one time costs (registering the business), on-going costs (utilities), essential costs (website), optional costs (company car), fixed costs (equipment lease) and variable costs (temporary subcontractor). 

Costs to consider:

  • Legal fees: business license, insurance, and any permits
  • Facilities: lease security deposits, utility and phone costs, signage
  • Equipment: furniture, computers, software, printer, phone and other specialized equipment
  • Website: development, domain name, website hosting, SSL certificate, email
  • Branding: logo creation, colour palette, email template, business cards, letterhead, brochures
  • Vehicle: lease for deliveries, sales meetings

Try hard to account for any potential “hidden” costs, especially if you’re planning on leasing a traditional office space. Office space on a per-square-foot basis can be very expensive, and many of them do not include desks, chairs, filing cabinets, fridge, or cleaning services. If you contribute a car, equipment or whatever else to the business, keep track of your contributions to deduct them from the total amount.

Coworking Spaces 

If you aren’t ready to take on your own office space, but don’t want to work from home, consider a coworking space. This alternative is not only affordable, but it also offers the flexibility to grow with your business without having to worry about potential lease-breaking fees. Coworking offers all the tools you need to grow your professional business including: business address, personal desk with lockable file storage, landline phone, dedicated Wi-Fi speeds, ethernet, secure server storage and VPN access, boardroom and meeting spaces, digital imaging centre (scan, copy, fax, print), a kitchen (sink, fridge, microwave) and free coffee or tea. COVID-19 restrictions have eased, and coworking spaces have adapted with the coronavirus-times, with social distancing rules and supercharged cleaning standards. 

Projected Profit and Loss 

This statement projects out your estimates into the future. Start by including your estimated Future Revenue. How much do you expect to take in each month for the next six months to a year? Next, include your estimated Variable Costs. What’s the monthly cost to you of the services, products or solutions you’ll be selling as part of meeting your sales goals? These variable costs can include supplies, materials, inventory, and packaging. If you sell services, count labour costs as variable costs only if they will go up or down depending on how many projects you have going. For example, if you think you’ll be handling most work by yourself, but would hire a subcontractor for a big job, that person’s labor costs are variable.

Next, estimate your Gross Profit by subtracting your monthly variable costs from your estimated monthly sales revenue. From that amount, account for all overhead costs (coworking desk, car payments, accounting fees, your salary) to find out how much you get to keep. Whatever is left over is your Net Profit. 

Creating a projected profit and loss forecast lets you see how long it will take to see any profits. And if your sales estimates are too high, you’ll have to adjust your take-home salary that covers living expenses. We suggest having a good six months of savings to help get you through until your sales can cover all of your expenses. Keep in mind, it’s always better to underestimate your income and overestimate your expenses.

Estimates Versus Reality

As you get going, keep an eye on your estimates versus reality. If your projections fall behind, you’ll need to make some changes by putting more hours into sales acquisition, cutting costs, raising prices, or even rethinking your business model. One of the biggest concerns entrepreneurs have is with gaps in cash flow, which makes it difficult to consistently meet payroll, pay suppliers, and cover routine expenses. Learn about financing cash flow and the kinds of business funding available to Canadian small business owners. On the other hand, if your starting revenue surpasses your projections, then you may need to hire subcontractors or employees, lease a larger space, or secure growth financing so you can expand to meet demand.

Properly projecting your startup budget with a detailed worksheet will allow you to drive your new business towards success. It will help prevent cash management problems, and make for better estimates of expenses and revenue. Keeping an eye on the bottom line is an important factor in building a healthy, growing business. Always plan for where your business will be in the future by putting cash flow management strategies into play.

Running a business is difficult, and sometimes you need an ally to bounce ideas off of. Not sure about what you need to be more efficient? That’s what we’re here for, so contact us and we’ll set up a call. Also, remember that you can deduct startup costs from your business taxes, so make sure to save those receipts!