Start-Up Financing: Estimating Start-Up Costs

Accessing capital for any small business isn’t easy. It’s even more difficult for start-ups. Having been there myself, I understand how most of the time Main Street businesses start on a shoestring. With little or no income, possible reliance on the equity in your home for collateral, and your personal credit history as the only foundation for a loan, it can be difficult to walk into the local bank or even an alternative lender, and get the debt financing you might need. When lenders look at your personal credit score, it tells a story about you and your new business. Understanding that story is one of the first things you’ll need to do, additionally, at the top of the list, a good estimate of what it’s going to cost you to start your business is a next step.

The following is a list of start-up costs you may or may not have when starting a business. Large or small, it all adds up pretty quickly:

1. If you’re not going to start your business out of your garage, what will rent cost you?
2. Whether you set up shop in your garage or not, there will likely be some build-out or improvements you’ll need to make to create a good business environment.
3. What are your salary/wage expenses. I went a couple of years without a paycheck once because I didn’t take this number into account.
4. Will you need to hire employees? There will be payroll expenses including payroll tax withholding, etc.
5. Will you need to purchase or lease office equipment like copiers, fax machines, computers, or a telephone system?
6. How much will the needed office furniture cost?
7. What about paper, pens, and other office supplies?
8. Will you need to purchase any inventory to set up shop?
9. Are you going to do any advertising?
10. You’ll also need to pay for a business license, possible permits, and insurance.
11. If you’re renting space, you may have utilities to pay for.
12. You will probably have accountant’s fees and attorney’s fees.
13. You’ll also have some specific costs associated with your particular business.

Although having all these cost estimates nailed down won’t guarantee you’ll get a small business loan, when asked, if you can demonstrate that you’ve given these things consideration and can show the lender your estimates, you’re further ahead than the next person that will come in looking for a loan.

Although they usually ask about your credit score, your time in business, and your revenues, what they really want to know is:

1. Can you repay the loan?
2. Will you repay the loan?
3. Do you have a contingency plan if things don’t go as planned?

Starting a business is not for the faint hearted. It requires passion, a product or service your customer wants, and the attention to detail that will help you dot all the ‘Is’ and cross all the ‘Ts’.