When starting a business, it is a must to determine which costs are necessary and which are not.
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This is because estimating your start up too high can result in you not getting the money you need. Estimating too low can result in you running out of money too quickly.
As for how you estimate business cost, there really isn't a wrong way or right way to estimate the cost of starting your business. You can, however, make a list of what you need and then see what you can reduce or eliminate.
Identifying Major Start Up Expenses
Before you can reduce or eliminate costly items from your start up list, you need to identify initial expenses. These are the expenses that are necessary and will serve as your guide toward determining other expenses, as well as eliminating the unnecessary business expenses from your list.
Here are some of the major startup up expenses that you will encounter:
Cost of sales – This is your equipment, inventory, shipping, warehousing costs, and any costs that are associated with the ability to achieve sales.
Fees – You will have fees such as attorney fees, drafting agreements, copyrights, and trademarks. You may not need all of these services, which means you can eliminate some of the cost.
Technology – You will have technology-related costs such as computer equipment, phones, Internet access, and website development.
Wages and benefits – Although benefits are an option, there may be a time in which carrying benefits will be mandatory. Wages are necessary and you will need to determine pay rates and hours your employees will work so that you can remain within your budget.
Administrative – You will need any necessary permits, utilities, supplies, packaging (such as plastic or paper bags), and insurance.
There may be some start up costs from the above areas that you may be able to eliminate. Furthermore, there may be some business expenses that you can reduce if you are unable to completely eliminate them.
Identifying the unnecessary
To identify unnecessary business expenses, look at each individual cost. For instance, you can look at the area of insurance and ensure that you do not pay for more than you need. This is a business cost that many overpay for. The best way to determine how much you should pay is to take an inventory of what is in your business and that will determine your coverage amount.
You can also reduce office expenses by going as paperless as possible. Rather than printing out memos, email them to employees. Encourage employees to use as little paper and other office supplies as possible and you would be amazed how much your office expenses would reduce.
Lastly, never invest in more office equipment than you need. Sometimes, it will suffice to buy equipment as you need it rather than buy equipment and never need it. You can research other businesses similar to yours and see what office equipment they are using.
By knowing what is necessary, you can determine what is not. Use your imagination to find that there are creative ways in which you can reduce start up costs. That way you can ensure you have enough money to make your business a success.