Business start-up costs: Be realistic and plan ahead

With starting a business being such an exciting time period for the entrepreneur, small errors can often creep in, in the companies financial forecasts or business plan as many of the costs that may be incurred during the start-up and stage may be overlooked. Its easy to under estimate the amount of money you will be spending on research and development, marketing, staff, tenders, packaging, a website and the many other elements needed for your business to get into the market.

Another common mistake at this time will be the over estimation of sales revenue for the business. As the entrepreneur behind the idea you are obviously excited and are assuming that the market will be as keen on the product as you are. This will seldom be the case, and if you do all of a sudden find that you have under estimated your expenses or time to get to the market, and on the other side have over estimated your income potential then you will find yourself very quickly with a cash shortfall. This may result in having to go back to the bank or closing the business in some cases. So how can this be overcome. Apart from ensuring you have support in creating business financial forecast the are a number of other issues that may be useful to look in to:


One way entrepreneurs can avoid the underestimation of new business costs is by doing independent research. By simply taking the time out to research the various anticipated expenses for a new company, business owners will be able to educate themselves about the industry, any leading competitors, and how much will be needed to launch and sustain their start up. They also need to analyze the performance of similar products in the market and determine different ways in which the product can improve. Research can be conducted through visiting online entrepreneur sites and by reading small business and start up books. In addition, entrepreneurs can also speak to other business owners who have experience and success in the same field. If an entrepreneur does not have the time to conduct independent research, they are able to hire a professional who can do the research for them. For an average cost of R50 toR75 per hour (R5,000 minimum), many business owners can conveniently obtain any needed marketing information for their new business.

One very important component to consider when starting a new business is the process of new product development and the amount of money it takes to effectively create a product. Many entrepreneurs will agree this development process not only takes time and effort to execute but it can also be financially draining. During a new product’s development, an idea can be generated rather quickly. However, it is the concept development and testing phase that may take a considerable amount of time to complete. In this particular phase, entrepreneurs will be faced with the cost of producing their product. They may also need to invest additional funding into the product’s test marketing and technical implementation phase, which may require more specialized revisions before their product can be commercialized.

For more information regarding product and market testing, refer to New Business Marketing Strategies

Every new business should have an updated, well-detailed website that proudly introduces their company and its different products and services. Their website should be user-friendly and designed and maintained by skilled technical professionals. A company’s website development and maintenance is a necessary cost, especially if the company is interested in making additional revenue outside of the traditional in-store purchases. In addition, business owners need to consider other technological expenses, including computers and accessories with updated specialized software for their company. Website and technological expenses are essential in today’s innovative and technologically-adept society.


Another cost to consider when starting a business is office expense. This financial figure can encompass the combined amount of renting (or buying) office space, office furniture, telephone and fax lines, high-speed Internet access, office supplies, etc. It can also include license costs, down payments and surcharges, office utility bills, inventory, maintenance, and company-related miscellaneous expenses. Many entrepreneurs do not realize how important this expense can be in order to properly sustain a business, and that is the reason why this cost is most often overlooked.


Every new business should also be aware that in order to gain public recognition and paying customers, they will need to spend money on promoting their company and its products and services. Marketing materials can include anything from professional business cards and stationery; local, nationwide, and international advertising campaigns; online and in-store promotional offers; public relations, company flyers and brochures; Internet and telephone marketing, etc. Depending on the type of industry and the aggressiveness of a company’s public relations approach, this process can be very expensive.


Business owners need to calculate how much their exclusive salary should be during the initial years of start up development. Even though most entrepreneurs may choose a modest salary, they should take into consideration the cost of living, including rent or mortgage payments, car and gas expenses, food, clothing, and other personal costs that are needed to sustain themselves and their families for about one year. A founder’s living expense can certainly cost less than their overall start up business costs; however, its significance should be taken into account since most new businesses will not reflect any profit for at least one year.


When starting a new business, entrepreneurs should take into account the salaries and benefits of their employees. First, they should consider if they will be the sole operator of their business or if employees will work for them. If their business will encompass the assistance of paid staff members, then the business owner needs to determine the hierarchy of workers and the number of full-time and part-time staff so their salaries can be adjusted. In addition, they can also determine who will be qualified for receiving health insurance and other employee-related benefits. Employee payroll and benefits are just two of the many different costs needed for a start up.

Another very important expense to keep in mind is the monthly cost of small business insurance. Every new business needs different kinds of insurance in order to protect their company, personal assets, and paid employees. For many business owners, the type of insurance they choose is highly dependent on the nature of their business. For example, liability insurance can protect a business’ property, while worker’s compensation insurance abides by state-specific rules when enforced. In addition, if a new company has a great deal of assets, they may be inclined to purchase property damage or theft insurance. In addition, company owners and board members may even consider getting life insurance to protect themselves and their families as well as legal service insurance which will cover any legal or professional fees.


During the pre-start up phase and throughout a company’s progress, an entrepreneur will work with many collaborators (including attorneys, accountants, investors, writers, ad visors, etc.) in ensuring the successful launch and development of their company. Many of the fees these professionals charge do not come at a low cost. In fact, they are rather expensive to hire and sustain. For example, many attorneys can charge anywhere from a few thousand dollars to tens of thousands of dollars just for lease negotiations, patent, trademark and logo planning, and non-disclosure agreements. Accountants, on the other hand, can also charge just as much, especially since they are needed for financial guidance and company tax purposes. Entrepreneurs should never underestimate the need for these hired professionals since they are the only ones who can provide the necessary guidance to an entrepreneur during the very stressful time of starting a business.

To learn more about the importance of an attorney for an angel investment, please refer to Angel Investment


Every company should consider travel expenses in their start up costs. These expenses will usually cover any business-related training outside of the company’s center of operations. They can include any educational or technical workshops, seminars, or training for employees and founders. Depending on the number of employees, a company’s travel expenses may be equally as important as other company expenditures.


The predicted costs for starting a company is often underestimated. An entrepreneur needs to properly evaluate all the associated expenses that need to be paid prior to the launch of their new company. Once they are able to consider the different financial costs, these estimated values should be well-documented in their company’s business plan. Failure to properly record all financial projections can easily cost a business owner from obtaining the necessary capital from institutional lenders and potential investors.

In addition, many business owners apply the “break-even” analysis of marketing. This is a term that refers to the amount of revenue an entrepreneur needs to receive in order to cover all company expenses before making any personal profit. This predicted calculation can closely estimate the potential profitability of a product. Many experienced entrepreneurs widely use this analysis as a primary screening tool for any new business ventures. It is a proven fact that entrepreneurs who are able to successfully “break-even” shortly after the launch of their new business or product have a greater chance of achieving company success when compared to those who did not “break-even.” The “break-even” theory closely estimates the viability of a new business venture and is a theory all business owners should apply.

Once all fundamental costs are carefully measured and well-thought out, the entrepreneur can then find different sources of funding for their new business. If considering different sources other than personal financing, they should then attempt to convince a business investor their product, indeed, shows promise of making a substantial amount of profit.

Once these issues have been looked into and given careful consideration you can start your business with more confidence and any investors or banker looking at your business plan is likely to have much more confidence that you know what to expect and have done sufficient preparation for the business start-up process.