Estimating Costs

A common mistakes business entrepreneurs make is underestimating the costs of their business when creating a financial plan based on low cost projections , leaving the business short of working capital. An office will require a high cost while a rental lease will entail low to moderate costs amd home based business has little to no costs associated with start up. Regardless of your businesses needs, every entrepreneur must take two costs into account: set-up costs and ongoing costs. Set-up costs are all of the one-time costs required to start your business, such as a security deposit on office space, furniture, computers and equipment purchase, signage, etc. Ongoing costs are all of the costs you encounter monthly, such as office rent, subscriptions, Internet fees, salary and benefit expenses, insurance fees, etc.

In order to determine how much set up money you will need, you must estimate the costs of your business for at least the first few months. All businesses are different, and have their own specific financial needs at different points in their development, so there is no one policy for estimating your set-up costs.

First you must identify all the expenses that your business will incur during its set-up phase in your effort to determine your set-up costs. Some of these expenses will be one-time costs such as the fee for incorporating your business or price of furniture for your building. Some will be ongoing, such as the cost of accounting, utilities, inventory, insurance, staff, etc. Determining essential from optional costs requires prudent judgment and can save your business vital funds. Essential expenses fall into two categories: variable and fixed. Examples of fixed expenses could be office lease, administrative costs, utilities and insurance. Variable expenses include shipping and packaging costs, sales commissions, inventory, and other costs associated with the direct sale of a product or service.