Following is a list of common startup
business cost items. It is impossible to present an
"average" since every business is so unique. Pick out what
applies to you, add whatever else you may think of, and you will have a
pretty good idea of your final start up cost.
Seed Money
So how much is a new business going to
cost? Obviously, much depends on how much the principals can do
themselves. Whatever needs to be done, and cannot be done by the
principals, needs to be contracted out.
It isn’t often cheap. As with aging,
raising financing ain’t for sissies.
One of the most difficult items to
quantify is the amount of “seed money” needed for a new startup.
Rarely can a company determine at the outset how long it will take to get
to the level of a “Start Up” or “Emerging” company, yet it is that
determination that will affect the success of the company for years to
come.
Most entrepreneurs seriously
underestimate the amount of seed money needed, and the amount of time
required to raise it.
Office rent
Plan for 6-12 months minimum. Find a
place that is comfortable for meetings with finance people and with all of
the various contractors/professionals you will need to start your
business. A solid business address really helps. Plush is not necessary;
comfortable is. It is even possible that your business could begin
at home, cutting down tremendously on rent costs.
Phone
Plan for 6-12 months. Get at least 2
dedicated business lines: one for voice, and one to share fax and internet
access. Look for a switcher available at most hardware stores that allows
for line sharing. If possible, opt for high-speed internet access – the
amount of time it will save is astonishing. If constant
communication is important to your business, budget for Blackberries
accordingly.
Stationery
Depending on the importance of the
company’s business image, it may or may not be necessary to have
professionally designed stationery as a startup business cost. Stationery should reproduce readily in
black and white (i.e., a logo of red on black would not show up in a b/w
photocopy). Backgrounds and watermarks do not work well.
Plan on letterhead, envelopes, labels and
business cards. They will all be used.
It is often possible to design a
reasonable letterhead on your own computer, and print it via your desktop
printer. My HP printer does very well for all my basic letterhead.
Office equipment as a Startup Business
Cost
Computer. A
computer, of course. Get one that has a CD-RW drive and plenty of RAM. A
good desktop is available for about $400.
Your startup business cost may also
include a second computer, a laptop. When traveling for the dog and pony show, a PowerPoint
presentation is almost mandatory. The entrepreneur is expected to have the
presentation on a laptop. Be sure the laptop has a CD-ROM drive (not all
do), and enough memory to handle your PowerPoint presentation.
You may be able to combine the two
computers by having a laptop with a docking station. As long as you have
the capabilities of a CD-RW drive, and the portability of laptop, this
option will work fine.
A printer is also essential
component of your startup business cost. A
good quality color ink jet only costs about $150. A decent black and white
laser printer is available for under $500.
LCD projector,
an essential piece of equipment for the dog and pony show for the
PowerPoint presentation. New ones cost $5,000 or more. Look for a used one
from an equipment rental company or from EBay.
Computer “extras”, such as a digital
camera or video camera if the presentation calls for it.
Copy machine
A basic machine usually works fine the first few months. Heavy copying
will be done at your local photocopy shop, not at your office. Good used
machines are available for around $500.
Fax machine.
Get a mid-range machine that will easily handle a 30-page transmission.
Plan on spending $1500 or so for this piece of equipment. (Note: There are
some units that combine black/white laser printing, faxing and
photocopying. Some of them are excellent.) Leasing options and used
equipment are often available, in which case a good used machine could be
leased for about $100 per month.
Binding machine.
Not needed. Use your local print shop. Small machines are slow and
inefficient, and end up looking sloppy.
Office furniture.
Look at used office furniture when offices don’t need to match it to
anything. “Used” means inexpensive, not cheap-looking or dog-eared.
Conference table and chairs.
Depending on the size of the initial management team, it may be more
efficient to rent an office in an office suite that shares conference
facilities.
Postage Machine. Few things will
make your business look as professional, as cheaply, as a postage meter.
Having rows of stamps looks so amateurish. Invest $20 a month and get a
good postage machine.
Travel (if seeking venture capital)
Plan on 2-4 trips per month to the
venture centers in your area. On the west coast, it’s usually Menlo Park
(near San Francisco), San Francisco, Los Angeles, San Diego, or Seattle.
On the east coast, New York and Boston are the most popular venture sites.
Assume that all flights are full fare, since often it won’t be possible
to plan more than a few days in advance for an important meeting. Assume
some overnight stays. Assume that your full management team will be making
these trips. Be sure to include meals and rental cars in your
calculations.
Entertainment
On each trip, plan on taking at least
three people out for a meal, whether it’s lunch or dinner. This is a
very legitimate startup business cost. Plan on a
respectable restaurant – it need not be the most expensive, but it can’t
be MacDonalds. In truth, such a lunch time is unlikely, and if it happens
would indeed indicate interest on the part of the venture firm. Be ready
for it.
Accounting work as a Startup Business
Cost
Depending on the sophistication of the
business, and on in-house capabilities, plan on spending somewhere from a
few thousand dollars to tens of thousands of dollars developing the
financial projections. This can easily be one of the most expensive items
on your list of startup business cost. For a basic venture capital oriented business,
assume the services of a CPA or financial specialist for a minimum of five
days at $800 per day. Plan on two additional days at $800 per day each
time the financial projections are revised.
Those looking for SBA loans, or
bootstrapping businesses, may or may not need the services of a CPA.
If your own skills are up to the task, do it yourself. No one
expects perfection in numbers, as long as they make sense.
Graphics work
For the venture capital dog and pony
show: The nature of graphics work varies widely from company to
company. Basically, plan on $2,000 - $5,000 for someone to develop a
PowerPoint “dog and pony show”, and $200-$500 to develop the cover and
graphic design of your proposal.
For poster size graphics in the dog and
pony show, plan an additional $100 to $500 for each chart or visual
element that is used. To save costs here, have the graphic artist design
the chart/visual in small format and have the local print shop blow it up
to poster size.
For web sites: You will be able to
do the vast amount of work that needs to be done. Use one of the
many templates available from your web host, or design your own. If
you want to call in a pro for polish, plan on an extra $300 - $1,000.
Printing/Distribution Costs
Those seeking venture capital will spend
a great deal more than those looking for bank or SBA financing, simply due
to the number of copies of your business plan that will be
reproduced. SBA and bank loans will only need 2 - 10 copies. Venture capital projects use 100 or more copies before you can turn
around.
Printing and distributing your financial
proposal is a very real cost. Plan on at least $0.75 per page for
color laser printing. Don’t try to print the financial proposal on your
dot matrix color printer – it will end up costing a fortune, and won’t
look as sharp as it should.
If the financial proposal is all in black
and white, have one very good laser print out made at the local print
shop, and make good quality photocopies from it. Use quality paper. As an
alternative, purchase or lease a decent laser printer and make copies on
it.
Binding costs about $3.50 per
presentation, including a vinyl backing and clear plastic cover.
Take bound financial proposals to every
single meeting – a copy for every single person there. For a standard
30-page financial proposal, plan about $20 per bound copy.
Also take a bound copy of the color
presentation – again, one for every single person at the presentation.
For a 25-slide presentation, plan on spending about $28 per bound copy.
Sometimes it’s possible to print two or three slides per page, but don’t
sacrifice legibility for cost savings.
Also plan on providing each person with a
CD that contains both the financial proposal, with appropriate backup
information, and the PowerPoint presentation. This is the least expensive
part of the trip: about $1 each disk.
Plan on distributing 50 – 100 copies of
the financial proposal. Each will need to be printed, and if it is
shipped, include $3 - $30 for each shipment cost.
If all of this sounds expensive, remember
what it cost to get this far. Don’t blow it now. Make it as easy as
possible for the venture team to learn about the proposal.
Legal fees
as a Startup Business Cost
Local attorneys typically charge $2,000 to
$10,000 for a basic corporation. I have used The Company Corporation for
years, with significant savings.
Patents can get very expensive. Plan on a
minimum of $10,000 for the patent attorney for each patent applied for,
whether or not it is granted. Plan on at least twice as much if
international coverage is needed. This is NOT something an entrepreneur
can typically do him/herself.
Trademarks and logos can get out of hand
very easily. If the trademark or logo is critical to the business, plan a
minimum of $5,000- $10,000 for legal fees. If the trademark and logo are
not important to the success of the business, look to basic protection
only at a fraction of that cost.
Market research
as a Startup Business Cost
What will it cost to research the
potential market for a particular product/service? Perhaps there is an
industry organization that can provide much of the needed information.
Perhaps a professional researcher can track down significant
studies/information.
Plan on $50-75 per hour for a
professional researcher, and plan on a minimum of $5,000 for reprints of
special studies that may be needed. If membership in a professional
organization is required in order to obtain marketing reports, that cost
must be included too.
One
of the best, and least expensive, sources of marketing information is
BizMiner. BizMiner
has been known for years by some of the top companies and institutions in the
country, such as Accenture, Black & Decker, Business Week, Cambridge
College, Capital One, Cingular, Dell Computer, Dellitte Touch, Ernst &
Young, Expedia, Federal Express, Wharton School, Yale University and thousands
of others.
The information
that BizMiner
provides is now so "user friendly" that anyone can find what they
need.
Product development
What will it cost to develop the
product/service sufficiently to provide a demo to potential investors?
Include the startup business cost of outside contractors needed, special design work, market
studies, etc.
Writer
With the help of this website, you should be
well on your way toward creating a very strong business plan, without having an
extraordinary startup business cost. If writing
is not your strong suit, you may want to hire a writer to polish it. Don't
let them talk you into spending thousands of dollars to put it into "their
format" -- the format isn't very important. It's the information that
is important.
Web site development
Yes, nearly everyone has a web site.
Design a web site to sell your business to potential investors, and
possibly another to attract employees. Depending on the industry and level
of development, it need not be sophisticated, but it must always be
professional. See Internet
Business Startup and Online
Business Plan for the tools your need to create your web site.
Basically, plan on $299 to get your web site operating for the first year
from the best service available.
Living costs
For venture capital proposals, this is the single most over-looked item
in business planning. It shows up on the formal projections under “Employee
Salary”, and it is critical. How much will it cost for the management
team to live for 6-12 months or more while looking for financing? Include
everything: house payment, car payment, insurance, food, phone, utilities,
clothing, and any other usual and regular expense. Sometimes a spouse can
provide some or all of these expenses.
Livings costs as a component of startup
business cost are less of a concern for smaller
businesses, but must still be taken into consideration. Use your best
judgment here.
Whatever you decide your startup business
cost will be, do the following:
- If you have never been in business before,
double your estimate.
- If you have owned 1 or 2 businesses
previously, increase your estimate by 50%
- If you have had 3 or more businesses, you
probably have a pretty good handle on your startup business costs.
Back to top
of Startup Business Cost
