Every business is different and has its own specific cash needs at different stages of development; therefore, there is no generic method for estimating your startup costs. Some businesses can be started on a shoestring budget, while others may require considerable investment in inventory or equipment. It is vital to know whether you will have enough money to launch your business venture.
To determine your startup costs, you must identify all the expenses your business will incur during its startup phase. Some of these expenses will be one-time costs, such as the fee for incorporating your business and the price of a sign for your building. Some expenses will be ongoing such as the cost of utilities, inventory, insurance, etc.
While identifying these costs, decide whether they are essential or optional. A realistic startup budget should only include those elements that are necessary to start the business. These essential expenses can then be divided into two separate categories: fixed (overhead) expenses and variable (related to business sales) expenses. Fixed expenses will include figures like the monthly rent, utilities, administrative and insurance costs. Variable expenses will include inventory, shipping and packaging costs, sales commissions, and other costs associated with the direct sale of your product or service.
An important source of small business financing is a commercial bank. Lenders will require an organized and well thought out business plan. The counselors with the LSBDC at McNeese can assist you in that process. Listed below is a checklist of information you should gather before your first meeting with a counselor. This information will bring you one step closer to that polished business plan to present to your bank, increasing your chances for obtaining a loan.
Personal credit report for each owner, including each person's credit score. To get a loan to start a business, you must have good credit. Your PERSONAL credit is your BUSINESS credit.
List of everything you'll need to buy to start your business, listed item by item, with the cost of the item (or service). (You can use the Cash Flow Worksheet to list this.)
Your projections (best guess, or pro forma) of what you'll sell, month by month, for the first year of operation, broken down by your cost and your income for the product or service.
- For example, if you're opening a tire shop, you could estimate that in a particular month you would sell 75 tires (at a cost of $40 each) with a retail price of $80 each. In that same month, you might also sell 20 rims (which would cost you $50 each) and you'd sell them for $110 each. You could provide 15 tire alignments (which would cost you $7.64 each to provide) and you'd get $19.95 each from the customers.
- You have to understand what you'll sell in order to put together your business plan. (You can also use the cash flow worksheet to list this.)
Your projections (best guess, or pro forma) of what you'll spend, month by month, for the first year of operation, listed category by category (for example, telephone, insurance, payroll, garbage disposal). (You can use the cash flow worksheet to list this.)
A bank will expect you to provide 25% to 30% of your start-up costs. Describe where you'll get this funding. For example: from your savings, refinancing your home, borrowing from a thrift plan, etc.
The first draft of your business plan. Bring a printout of what you've written AND the file on a disk, CD or memory stick, or email it to us ahead of time at LSBDC.MSU@lsbdc.org. We will have time to review your work prior to the counseling session, making the best use of your time.
Individuals often call our office asking for grants or "free money" to start their business. They may have heard about this free money from television or read about it on the Internet. In most cases, the information is incorrect and misleading. In other cases, it is close to a scam, at times asking for money for additional information. The SBA and most other funding organizations do not provide grants or "free money" for starting or developing a business. Although there are some grants available, they are targeted toward specific groups such as non-profit organizations. They are not available
for for-profit companies.
For assistance in determining your business financial needs and writing your business plan, please contact the LSBDC at McNeese State University to schedule your free, one-on-one counseling session.
This Cash Flow Worksheet is a good tool to use when planning your business expenses, income, and future projects. Fill in your start-up and monthly operating costs and estimate your sales for each month. The worksheet will add and subtract for you. We also review this worksheet during the Starting and Financing a Small Business seminar.