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- How much money do you need when starting a Business?
- How to start a business on a limited Budget
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- Eight Management Priorities when you start your Business
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- Developing employee skills
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- Five ways to increase your profit
- Cost-reduction tactics for small businesses
- How to handle debt so you always get paid on time
- What to do if your business is operating at a loss
- Choosing payment terms for your business
- Calculating your break-even point
- Calculating start-up costs – how much money do you need?
- Break-event analysis
- Advertising that works
- Weighing Up successful Plaining Options
- Deciding to keep your business in the family or to sell up
- Build your marketing plan by creating awareness
- How to write a customer Questionnaire
- Identifying your target market
- Sure-Fire Marketing plan in eight easy steps
- 10 ways to build a competitive advantage
- Testing the market before taking the plunge
- Use focus group to understand your Customers
- Ways to identify new markets and Customers
- Creating Promotional Plan
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- How to accurately Forecast Sales
- Improving the effectiveness of your advertising
- Ten Marketing priorities when you start your business
- How to raise capital for your business
- How to get great advice
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- Nine ways to retain great Employees
- Growing your business-checklist
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- How does depreciation affect small businesses?
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- Why it can pay to buy an existing Business
- Five Top Ways to research your Market
- Buying a Business how much should you invest?
- Undertaking your own market research
- How to avoid three common Profit Mistakes
- The Power of cash Flow Forecasts
- The Difference between cash flow and profit.
- Ten steps to successfully Franchise your Business
- Key Drivers To Boost Profitability and cash Flow
- Increase your profit in 90 Days
- How to scale your business for growth
- Cross-selling and upselling to increase your sales.
- Changing your business model
- Handy Tips for improving your cash flow
- What to do if your business is operating at a loss
- Should you lease or Buy Assets
- How to handle debt so you always get paid on time
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Calculating start-up costs – how much money do you need?
Before you start a business, you need to know exactly how much money you’ll need, and where it’s coming from. You’re out of business fast if you fall short before you’ve started.
Why you need to plan ahead
If you want to see your new business start-up succeed, you can reduce some of the financial pressure by planning ahead. Spend some time estimating your start-up costs before you launch your new business enterprise. It could help to prevent cost blowouts later.
Estimating your start-up costs falls into two basic categories:
- Set-up costs.
- Working capital.
Determining your set-up costs
This is what it’s going to cost you to get your business up and running. Set-up costs are one-off expenses that are required for your business’s launch.
It’s common for some business owners to underestimate the actual amount of money needed to start up a new business venture. Take the time to work out exactly what equipment your business will need to start generating income.
Every business has different start-up costs to consider. Yours will depend on whether:
- You’re starting up a brand-new business.
- Buying an established business.
- Purchasing a franchise.
If you’re buying an established business or a franchise, that’s the first amount you need to enter into the calculator.
Starting a new business
Tally up all the purchases you’ll have to make to get your business up and running. Some of these costs will include:
- Vehicles
- Plant equipment and machinery.
- Office equipment – like computers, scanners, printers and photocopiers.
- Fitting out your business premises.
- Fees for licenses or permits.
Put together a reasonable estimation of the costs involved in starting up your business. It’s much easier to determine how much could be paid for from savings, and how much could be borrowed on a small business loan, if you have a clear estimate to work from.
Working out your working capital
Once you’ve determined all your set-up costs, work out how much working capital you’ll need. In other words, how much is it going to cost to keep your business running until you think you’ll break even before starting to show a profit?
Examples of these ongoing costs are:
- Rent – if you’re working out of commercial premises, factor in the rent.
- Power – whether you’re working from home or a business location, estimate the cost of power.
- Additional overheads – consider all your monthly expenses, such as Internet, phone, rates and wages.
It’s a great idea to work on a four-month basis when it comes to your working capital in the start-up phase – meaning you estimate it’ll take four months before you generate enough sales to break even.
If you’re unsure how long it’ll take to break even, start with a base of four months and see how your sales go.
You’ll also have to consider your initial purchases of supplies, whether they’re raw materials for manufacturing your products or simply stock.
Total up your costs
You can tally your set-up costs and working capital expenses using a spreadsheet. Sit down with your accountant and go through all your estimates, as they’ll make sure they’re accurate and you haven’t missed anything out.
Once you’ve added up your costs and have a solid figure in front of you, it’s time to run a break-even analysis.
This is how long you think it’ll take your business to break even based on your start-up costs. It’s an important step, because if your business isn’t going to break even within a certain time frame, then it’s going to take even longer to show a profit and might not be worth getting into at all.
If your figures show you don’t have enough money to start, don’t give up straight away. If you can’t raise the extra money you’ll need, you can try:
- Reducing overheads – look for cheaper premises or see if you can get a better deal on your energy costs. Reduce your salary and the number of staff you’d planned to hire.
- Reduce set-up costs – look for cheaper machinery and equipment or investigate leasing it instead of buying.
You need to be sure that the costs of setting up your business are feasible, and that you’ll see a return on your investment. It’s important to be as honest and accurate as possible when calculating your start-up costs.