How to Calculate Total Overhead Cost Managerial Accounting

November 28, 2021

How Much Does a Start-Up Cost?

Launching a start-up is an exciting opportunity. Determining the costs of launching a start-up begins with knowing the factors on which to base your estimates. Use these guidelines to help you figure out your business start-up costs.

Don't Underestimate Your Expenses

A very small-scale business can cost approximately $3,000 to launch, while most home-based businesses can get started for between $2,000 and $5,000, according to the U.S. Small Business Administration (SBA). Start-ups must plan for their first month of expenses and expect these expenditures to grow as the business does. It will be easier to plan for fixed expenses as the months pass, but, initially, these will all be estimated costs when you're looking at your start-up business capital.

What Types of Costs Will Your Business Experience?

Understanding the costs your business will have will help you estimate your expenses better. There are several different types of expenses involved in launching and operating a start-up. You'll be encountering one-time and on-going expenses, optional and essential costs, and variable and fixed expenses.

If you want to run a start-up cleaning business, for example, one-time expenses could be purchasing vacuum cleaners, and the on-going expenses would be the cleaning products that need replenishing.

An example of an essential cost is buying a van for transporting prepared food when you're running a catering business start-up, and optional costs might be an office to run the catering business out of during the first year.

Fixed costs include rent, and variable costs include those that change like utilities and fuel for your vehicles.

Make Cash Flow Projections

When launching a small business start-up, it's essential to project at least three months ahead regarding the cash flow of your business. You'll be looking at the fixed costs as well as estimating the costs of goods and the best- and worst-case scenarios for revenues. Those who are borrowing money should take into consideration how much they're borrowing and what the monthly payments will be as well as the interest they're paying. Optimally, businesses should launch without borrowing money at all, so they don't have to put that interest against their revenues.

How Will You Fund Your Start-Up?

When funding a small business start-up, the best way to go about it is to obtain grants or approach friends or family members for funding options. That way, you're not accruing interest against your revenues. Because you don't have to pay back grants, this is your best option. You can apply for grants throughout the lifetime of your small business. Small business loans are available, too, if you're unable to access grants or funding from friends or family members.

Don't Forget Tax Costs

When starting up a business, don't forget about the expenses that incur from paying into and the preparation of taxes. You may be entitled to deduct start-up costs as well as business expenses from your return. You'll see three different categories that the IRS divides for eligible start-up costs which include preparation costs, legal and organizational costs, and research costs.

McBeath Shumed