Calculating and forecasting what you will need to purchase for your new business can be a daunting task. There are many variables at play that can change as you get closer to making that first sale — making it difficult to estimate how much you need to fundraise from friends, family and investors.
Startup costs generally fall under one of two categories: upfront expenses and ongoing costs. Upfront expenses include things like licenses and business permits, equipment, incorporation fees and logo design. Ongoing costs can include things like your office or storefront lease, employee expenses, insurance payments and taxes. Dividing your budget into these categories can help you plan for the future and understand the immediate costs for which you need to budget.
[Read more: How to Determine Your Startup Costs]
Permits and fees
As a new business, there may be permits you need in order to operate legally in your state or municipality. For instance, restaurants need business licenses and inspections to help ensure basic food safety standards are met. Some communities require zoning permits to protect residential neighborhoods, while other businesses may be subject to permits just to sell their product (e.g., health stores or beauty brands).
There are also incorporation fees to consider. If you decide to form an LLC, for instance, you will need to file with your state. “The filing fee can range from $50 to as high as $725 depending on the state. However, the fee is under $300 in the majority of states,” wrote NerdWallet.
Speak to your local government to find out if you need specific business licenses or permits to open your new venture.
Equipment and technology
Tech is probably the biggest startup expense for which you need to budget. This category includes things like laptops, a point-of-sale (POS) system, and industry-specific equipment. For instance, a salon will need styling chairs, deep sinks, hairdryers and styling stations. Restaurants and cafes need commercial-grade ovens, stovetops, refrigerators and freezers.
The good news is that marketing costs can be flexible. There are plenty of free social media tools that you can use to spread the word about your company.
Inventory
Inventory is a tricky line item for which to budget. Overestimate how much you need, and you may risk damage, spoilage or some items becoming obsolete. Underestimate how much you need, and you may miss closing a sale due to stock-outs.
NerdWallet suggests allocating between 17% and 25% of your budget to inventory, depending on your industry. “When you’re first starting out, consider securing more inventory,” they wrote. “You'll want to attract customers and generate as much revenue as you can in your company's early stages.”
Marketing costs
Marketing your new venture takes a combination of upfront and ongoing funding. The upfront costs include things like your logo design, building a website and printing business cards, signage, and other physical assets. Ongoing costs include things like paid social media advertising, digital ad campaigns, email promotions and influencer campaigns.
The good news is that marketing costs can be flexible. There are plenty of free social media tools that you can use to spread the word about your company. Some of the upfront costs can be managed by outsourcing to freelancers or taking advantage of online tools like Canva to reduce expenses.
Utilities
This category, like marketing, can also be variable. Merchants that are trying to keep expenses to a minimum may choose to operate from their home using an e-commerce model. Others may be opening a retail space, in which case the majority of expenses will go toward the lease, utilities, and in-store equipment.
If you’re the latter, budget around $2 per square foot of office or retail space for utilities. Utilities include electric, gas, water, internet, and phone bills. And, if you work from home, prepare to see some of these bills also increase. You may need a faster internet connection, for example, to host video calls with your suppliers or new employees.
[Read more: 5 Unexpected Startup Costs You Might Forget to Plan For]
For more help estimating your startup costs, try the SBA’s Startup Costs Worksheet, a simple calculator that can help you estimate and track expenses.
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