October 22, 2014  
 
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Costs To Start a Business

 

How Much Does it Really Cost to Start a Business?

Written by Chukwuma Asala for Gaebler Ventures

Most people underestimate how much it will cost to run their business and overestimate how much their profit margins will be.

When you first consider starting a business it is important to not be too whimsical in your expectations.
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I am not insinuating that you do not have high expectations for the growth of your business, not in the very least. It is vitally important that you have a long-term vision for your business that is positive. You can't get started in business expecting to do anything less than be very successful. What I am saying is that be careful not to overestimate how much money you can make and underestimate how much you will have to invest initially just to get it off the ground. Most new business owners do not have any experience running a conventional business let alone starting one from scratch. The average business does not make it past its fifth year in business because many people go in with a skewed reality of what it takes.

The biggest obstacle most people have is overcoming the money challenge. Unless you happen to have a really rich relative who is willing to front you the money to get started you will have to rely on your business plan to sway different investors or banks to loan you the money with promises of a huge return on their investment. This is always tricky as most of these investors have the money to invest but are not very easy to convince. Plus, they will not be willing to invest as much as you request unless they see some commitment on your part as well. A safe rule of thumb is to not ask for investment from outside sources unless you're willing to invest some of your own capital yourself. Your business plan carries more weight if you can show you are equally as vested.

For the sake of argument, let's assume you get your business off the ground and it is up and running. The next big cost will be operation management. Almost every business, new and old, struggles with managing operation costs. It is the single toughest thing that either makes or breaks your profit margins. It is always safer to assume this will be the largest cost you will have for your business. Be sure to add one hundred percent more to your projected operation costs because chances are it will be just about that. And it is smart to factor in miscellaneous costs that will come about pretty much every month you are in business. Murphy's Law of "If something bad can happen, it will" was probably created for entrepreneurs so you can never have too much reserve cash for a rainy day.

The bottom line is to remember that business financial statements are not as black and white as they theorize in business school. Nothing is ever as it seems, and you will always need more money than you think you do to get your business started initially and then to keep it running. As long as you can manage your expectations handling the cost fluctuations will be challenging but not impossible.

Chukwuma Asala is an international student from Nigeria who is studying to earn an MBA from the State University of New York in Albany. He has analyzed more than 20 industry case studies throughout his education thus far, and hopes to bring some of his business knowledge to Gaebler.com.

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