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How Much Cash Will You Need To Launch A Startup?

As you consider starting your first business, you should be looking at the costs of running a company. There are some obvious things most people will consider: the cost of rent in their area, the cost of inventory, the manufacturing costs of their products. But there are a number of factors that many first time entrepreneurs forget to factor in.

For example, if you haven’t launched a startup or a new business before, you might forget to calculate benefits costs for employees, for example, or utilities in your office or retail location. These might seem like small costs, and each one individually might not be overwhelming. If more than one or two things get missed, however, companies might find themselves without enough available cash to get off the ground in the first place.

Let’s look at some of the costs that business forget to factor in.

Inventory Loss

Shrinkage isn’t just a joke on Seinfeld, it’s also a serious problem for businesses. Shrinkage is the name coined for items that are stolen from a business’s inventory. It can refer to items lost from a retail location or smaller items like boxes of paperclips and other business tools. It is estimated that retailers in the U.S. lose $42 billion a year, with the bulk of those dollars being lost internally.

Unfortunately, many companies focus their loss prevention efforts on customers; they may have restrictive return policies or limits on how sales can be used. Although some of this does make sense, companies should remember that the best prevention for employee loss is good employee satisfaction.

Fair policies, competitive wages, and good management relationships are all expensive for many companies, but maintaining employee satisfaction can be an incredibly powerful shrinkage prevention tool.

Licenses, Dues, and Permits

Every area of the country requires businesses to have certain permits, for buildings to be coded in certain ways, and for some sectors of employees to have licenses before they can practice. All of these items have a cost. Some entrepreneurs might think that they can simply run their business out of their basement or garage, but even that can run you afoul of different homeowner’s insurance regulations.

Since each community is different, there’s no way to give an overall estimate of what the licensing and permit costs might be in a particular area, but speaking to the local Chamber of Commerce is often the best way to get more detailed information.

Website Costs

Some businesses are entirely formulated around buying and selling websites; this should tell the average business owner something about how complex the process of setting up a website can be. If your website is strictly informational, then you can probably get it set up quickly, on your own, and without a huge cost. Informational websites tend to be pretty static.

Pages exist about employees, perhaps, or services offered by the company. Landing pages generally direct customers to take an action, such as calling your business for a free quote. Many companies choose to pay a content writer to maintain a blog for their company to keep the page fresh in Google SERP.

But if your website involves inventory, online shopping, or other service bookings, however, creating and maintaining that website can get expensive fast. For some businesses, this is necessary; they may not have a retail storefront at all, and their website may be the public face of their business.

If you’re building a website, its tools, and its application from scratch, experts point out that you’ll be paying at least 4 developers about $50/hr for several months to get the website fully functional. Those costs could add up to $200,000 for a from-scratch website. And remember; you don’t develop a website once and then walk away. It needs to be constantly updated, refreshed, and revitalized to stay current with how people use the internet and business security needs.

Repairs

If your company manufactures a product, the item doing the manufacturing is going to break down eventually. Offices lose computers, copiers, and networking devices to age, misuse, and attack. Companies need to be able to respond quickly to broken items to avoid disruptions in business that can cause further problems.

Making sure that a company has the adequate liquid cash to pay its bills and meet any surprise obligations is a good way to make sure the business is successful over time. Remember, the rule on emergencies isn’t if they will happen, it’s when.

Employee Benefits

Some companies budget for the amount that they will pay their employees, but forget about tax contributions and other amounts. For example, if a company offers a 401k plan with a matching benefit, the company needs to be prepared to pay that matching amount in when appropriate.

Some experts suggest that paying employee benefits means that companies should budget for 40 percent over their on-paper salary amount.   

Business Insurance

Some companies try to save money by not buying business insurance; this is a terrible idea. Much like driving a car without insurance, companies are risking their entire business, and possibly even their personal assets, by being negligent in this area.

Don’t be afraid to negotiate with the chosen insurance provider and make sure coverage is right-sized; a business without employees doesn’t need to worry about worker’s compensation insurance yet, for example.

Businesses tend to thrive when they have plenty of available assets and a well thought out plan on how to spend them. But to truly understand how funds will be spent, companies need to make sure that they have an accurate budget and a good plan that allows for unexpected costs. If companies are unsure how to get started in this area, reaching out to a business mentor for advice in their industry can be a good start.