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Small Business Loan Estimating Costs
Congratulations, your new business is beginning to take shape. But before you can apply for the loans you need, you must first determine the amount of funding you will need. You will be spending plenty of money even before your business is up and running. The most common mistake many business owners make is underestimating start-up costs, often referred to as being "undercapitalized." The expenses for the first several months of your business should be well planned. This not only helps you become prepared, but it shows potential lenders that you are serious. Determining your start-up costs is fairly easy - it just requires a little research. Start by making a list of all of the expenses you anticipate facing throughout the first few months of business. These expenses may be one-time costs such as fees and licensing. Other expenses will be reoccurring expenses such as utilities and payroll. It may be easies to break your expenses into sections, such as office supplies, equipment and professional fees. You can look to trade publications if you are unsure of certain costs and fees. Your inventory costs can be found by contacting various suppliers. You can even ask similar business owners and associations for more information as to their costs. It is easy to leave out expenses. Don't forget that you will have mailing costs, insurance and signs. Sometimes, you may forget the simple things. For example, certain businesses may have fuel and vehicle repair costs. You may also need to add in cleaning costs, attorney's fees and don't forget your accountant. You will find that your costs can be separated into two groups: fixed expenses and variable expenses. Fixed expenses are those that will not change month to month, such as rent and insurance. You can depend on these amounts to remain the same. Variable expenses are those that fluctuate and include inventory and shipping costs. When estimating your variable expenses, you will be better off in the long run if you over budget how much you need for each item. If you believe that something will cost you more, go with your instincts. You don't want to be searching for money later. Once you have established all of your costs go through your list and decide whether each cost is essential or optional. Your start-up budget should only include necessary expenses. You might like to have that $6,000 computer for your office, but you know that all it will be used for is writing bids and invoices. Can you manage with a less expensive computer? You probably can. You may actually find that you have better use for your available funds elsewhere. Later on, you may need that extra money for something vital. Once you have estimated your costs for the start-up of your business, you may be in shock. It is easily said that things add up. It is important to know how much you will need to start and run your business. If you borrow too little, you may find yourself unable to pay your bills or your employees. If you borrow too much, you may find yourself unable to borrow later. By estimating your costs before borrowing, you map out your way to a financially successful business. |