The primary reason why many small businesses fail is they underestimate the amount of capital needed during the startup phase of the business. Starting your own business is a great way to take charge of your future, but it is important that you be prepared if you want to transition from employee to entrepreneur. The first step is to build experience in your chosen field so that you are prepared for the unique challenges associated with every business. Your next and most important step is to accumulate the capital necessary to start the business. If you fail to correctly budget the capital needed, you are likely to run out of money before your business gets off the ground.
Capital is used to fund your initial startup costs and the ongoing monthly operating costs of the business. This capital can come from loans, from outside investors or from your personal equity. Because your business will not be running at full capacity during the initial startup phase, you should have enough capital to cover the costs outlined below for at least the first six months of your business.
1. Startup Costs will include:
City or county business license fees
Incorporation fees paid to the state and associated legal fees
Security deposit and the first month’s rent for a commercial lease
Initial inventory if you sell a product
Office furniture and office supplies
Computers, computer software, printers, copier, security system and telephone system
Exterior signage
Business cards and stationary
Decorations for your space
2. Monthly Operating Costs will include:
Employee salaries and commissions
Monthly rent
Monthly draw for the owners
Payroll and other accounting fees
Income and sales taxes
Telephone and internet service charges
Utility charges for electricity, gas and water
Inventory replacement if you sell a product
Insurance
Office supplies
Advertising and marketing charges
Website hosting and website maintenance
The monthly cost to service your loan if you took out a loan to start your business