How to Determine the Cost of a Startup

You have the perfect business idea. But it can’t come to fruition without money. So how do you get your master plan in motion?

You may believe that coming up with a rough estimate of the cost is good enough. But when the time comes to formulate your business plan, you need concrete numbers. If you don’t want to exhaust your funds before you ever see a profit, you must know exactly how much you need, not only to get up and running but to keep going.

So where do you look to get this estimate?

A logical beginning is to find entrepreneurs who own businesses similar to the one you are planning. Since future competitors are unlikely to want to help, you’ll probably have to look outside your market area. But the small business community generally sees itself as pulling the same rope. Look outside those you will directly impact should you succeed, and you can probably get plenty of valuable information and estimates on startup costs. If you plan to purchase a franchise, these numbers are easy to gather from your franchisor and even other franchisees outside your immediate area.

Trade associations are a valuable resource because they focus completely on your niche. A thorough organization may even have items such as startup cost worksheets and financial statements. They may also be able to provide direct contact with established entrepreneurs.

If your business involves selling a product rather than a service, suppliers are the key to determining your operating costs and efficiency. Find several in your region, and comparison shop. Suppliers are likely to provide the information you need in hopes that you’ll choose them to be your supplier going forward. You can garner information about bulk-purchase costs, credit terms, and inventory packages that can trim your upfront outlay.

A default source for many people is a simple one: the bookstore. Many books offer “expert” knowledge on how to get your startup running. Be careful, though. This avenue is best only if you’re delving into an industry that is established. Startup costs are different across industries, and you’re not going to get an accurate representation of how to get your new niche product off the ground by using the methods of an already established industry. Virtually every cost will differ, and you’ll end up doing more harm to your efforts than good. Add in things such as geographical cost discrepancies and you’ll find you must take extra care in analyzing the information.

A valuable resource available through the Small Business Administration is the Service Corps of Retired Executives, or SCORE. Founded in 1964, SCORE has more than 11,000 volunteers available through hundreds of chapters who donate their time and expertise. Essentially you connect with a counselor to guide you through the process, someone who has done everything you are hoping to accomplish.

Of course, if you want more than guidance, you can hire a business consultant who will handle at least a portion of the legwork for you. Expert planning works, but it comes at a price.

The bottom line: Neglecting research is the greatest killer of startup businesses. Time invested in establishing a thought-out plan will mean more profit down the line.