When starting a new small business one of the first issues is the amount of money needed. Obviously each business and industry will require different amounts of funding but there are five basic areas that anyone looking to start a small business will want to assess before seeking funding.
Licensing
Every small business will have to file paperwork. Unfortunately this paperwork is seldom free to file. Depending on the industry, licenses may include those for food and beverages, heavy equipment, building permits, hunting or fishing, teaching, having a home business or a general business. All licenses of this nature will be awarded by a city or county office. Find a local Small Business Administration office or visit an area college for more information on resources.
Facility
Most small businesses will require some sort of facility, whether building, renting or remodeling, facility costs will be a considerable amount. If building or owning the facility, it will be important to include all property taxes and insurance as well as the basic utilities, in your calculations. If renting, it is important to consider lease terms to assess total costs. Even a home office will need to take money into consideration. Amortization will need to be calculated by figuring the total square footage of the work space used in the home for the small business. Divide this amount by the total square footage of the house. The result will be a number with a decimal point. Multiply this amount by the total cost of rent or mortgage each month. This is the amount of amortization. This information is crucial for accounting and tax purposes.
Inventory and Equipment
Building initial inventory and purchasing the basic equipment needed is often the greatest cost when launching a small business. If possible limit initial inventory and purchase used equipment. This will limit costs and allow for upgrades as more funding becomes available. When calculating the total costs of inventory and equipment it is crucial to add delivery expenses and taxes. Also, do not neglect to add the cost of office supplies such as pens and paper.
Employees
While many small businesses do not require employees it is important to consider all the manpower needed to operate a small business. Most small business owners are not capable of handling all accounting, legal and custodial needs. Even when traditional employees are not needed, these contracted tasks must be calculated into the total costs. Additionally, commissions, wages, insurance, and taxes will need to be figured or estimated for all non-contracted employees.
Advertising
Without advertising a small business cannot succeed. While some of the many effective advertising tools, such as word-of-mouth advertising, are free, many are not. Develop a well thought-out marketing plan to assess the total advertising costs needed. Items to consider include signs, flyers, website costs, phone book ads, open house events, decals and manpower.
Other Costs
Additionally, there are several other costs that do not fit nicely into a single category. This list includes other common costs that appear in the basic accounting statement of a new small business: bad debts, bank charges, charitable contributions, credit card fees, dues and subscriptions, and interest.
