Starting your Business: Count the Cost
There are as many reasons to start your business as there are days in a year. The top reasons most frequently offered by our clients may be grouped into the following:
entrepreneurial mindset,
legacy building,
independence/self-determination,
job security,
giving back/doing good, and
beneficiary of one’s own labor.
Despite these very good explanations, there is one factor that is fairly common to many people wanting to start their business: insufficient or lack of finances to keep going long enough to succeed. This is where my mother’s sage advice always comes to mind. It was one of the tenets of her faith based worldview. “Can a man build a house without first counting the costs?” she would ask when confronted with another 'great idea' from one of her children.
Starting a business requires money—whether it is cash or credit.The exact amount money depends on the product(s) or service(s) you are planning to sell. You may want to purchase an existing company, in which case you will need a lump sum payment up front. However, the professional advice of an Accountant or a Business Adviser should be sought before going through with any purchases.
Some areas that will need your careful consideration before starting your business includes the following:
Premises: Do you need a physical location? What type and size of the space is required, or are you planning an online marketplace?
Product: Will you be buying raw materials to make your product, outsourcing manufacture or selling retail?
Personnel: How many people are required to get started?
Preliminary Operational Costs: Secure sufficient resources and finances until a livable income can be earned from the business for a reasonable period of time (e.g. 6 months minimum).
In order to make fully informed decisions about each of the headings above it is important to do some “grunt work.” By this I mean primarily two things to begin with: market research and business planning. You can do these yourself if you have the experience/skill, or you can enlist experts to undertake an area—or both—on your behalf.
Market Research: It best to do your research before you commit to spending any money, even on the formation of your business organization. A business idea may be unique and sound amazing, but the most important thing to know is whether there’s a market or a sufficient demand for the particular product/service to make it profitable. Market research to determine the viability of your venture is an important first step as it will help you decide if and how to make your idea a reality. There are companies that specialize in doing these kinds of market research projects as well as business consultants who can work with you to provide guidance in undertaking the research yourself. Of course, if you have the expertise, your market research could be a sunk cost to you.
Business Plan: Developing a brief business plan can seem daunting or mundane depending on your interest in writing and developing concepts and processes. If you are looking to secure financial backing from investors or get a bank loan, a business plan is important. It will be examined to understand details about the operational and management systems planned to ensure the success of the venture. Even if you are not interested in acquiring finance, it would behoove you to write a business plan as it will focus your thinking on how to make your business a fully functioning and productive enterprise. Again, you can do this yourself or get help. Whichever route you choose will require some in-depth thoughts about your plans to run a business.
Finally, thoroughly assess how much you need to start your business and maintain operations for at least one year. That will be the minimum you should budget. Now let’s look at some of the specific things to include in calculating your start-up costs. There are always some unexpected expenses that are likely to arise. Remember, your startup expenses will depend on how much you are ready to do yourself and how much you need to outsource to experts.
What to include in your startup cost calculations:
Business Formation,
Licenses, Permits and Insurance,
Business Cards,
Website,
Advertising,
Accounting/Payroll Software or Professional Services,
Mailing Supplies, Packaging and Postage, and
Merchant/Credit Card Processing System.
Having counted or calculated the costs to get started with your business, you can now decide whether running a business is fit for you. It will require hard work, patience, time, and commitment; but ultimately, your success is worth it. Steering your own ship can be a very rewarding experience and can certainly lead to a satisfying, enriched lifestyle for you and your family.
