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Start-Up Costs: Overview

Every business is different, and has its own specific cash needs at different stages of development, so there is no generic method for estimating your start-up costs. Some businesses can be started on a shoestring budget, while others may require considerable investment in inventory or equipment. It is vitally important to know that you will have enough money to launch your business venture.

To determine your start-up costs, you must identify all the expenses that your business will incur during its start-up phase. Some of these expenses will be one-time costs such as the fee for incorporating your business or price of a sign for your building. Some will be ongoing, such as the cost of utilities, inventory, insurance, etc.

While identifying these costs, decide whether they are essential or optional. A realistic start-up budget should only include those things that are necessary to start that business. These essential expenses can then be divided into two separate categories: fixed expenses (or overhead) and variable expenses (those related to producing sales for the business). Fixed expenses will include things like the monthly rent, utilities, administrative costs, and insurance costs. Variable expenses include inventory, shipping and packaging costs, sales commissions, and other costs associated with the direct sale of a product or service.

The most effective way to calculate your start-up costs is to use a worksheet that lists all the various categories of costs (both one-time and ongoing) that you will need to estimate prior to starting your business.

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