Business Start Up Costs
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It’s difficult to work out convincing business start up costs, but nevertheless it’s critical, especially to convince any investors or bank that you’ve done enough homework in respect of start up expenses.
A great technique for building your business start up costs is to start with the activities that drive expenditure.
Build Start up Costs from Planned Activities
This is what’s known as a bottom up technique. You start by planning out what you’re going to do and then start to build up the costs from the planned activity.
For example, let’s say you plan on presenting your business products at trade shows four times a year. That will have some cost implications. How much does the trade stand cost? How will you get there? What will be the cost of that travel? Will you need to stay in a hotel? Which one? How many nights? What’s it cost per night? What about food?
You get the idea. Once you have broken down an event into its separate activities, it suddenly becomes much easier to work out what things are going to cost.
The great thing about working out your start up costs this way are that you can quite easily scale it up or down depending upon your success at each event.
Benchmark Business Start Up Costs with Your Industry.
One of the hardest things in business when you’re starting out is to work out as soon as possible which marketing activities deliver value into your business, and which take it out.
Let’s say you budget to attend a trade show like above. Now what you’ve got to work out is if that trade show is delivering the right sort of prospects and customers. Why not attend the show, and ask the stand holders? Tell them you’re operating out of town and wondered about whether to attend the show. Find out if it pays. Don’t forget of course they’re there because they’re sales people so you need to read between the lines.
Now join a local business network. Your local chamber of commerce or trade support group will do. If you get stuck ask some local businesses, you’ll soon find out where you need to be going. Ask the important questions. When you started out, what were your business start up costs? If you want to start a bakery, ask What does a bakery spend on raw materials? Who are the suppliers in the planned area? What’s the average customer spend. The more you ask the more you’ll get out of it.
Successful business franchises have business models and processes that work. They know exactly what the return is for every marketing dollar spent. With that in mind it is an excellent idea to send off for franchise documents even if you’re not going to buy one, because you will gain valuable information about small business franchise costs and cost ratios especially in regard to marketing.
You can also subscribe to marketing services on the internet, or much cheaper go to your local library where you can research company data that will give you sample profit and loss ratios (How much percent profit you make per Unit currency of sale), return on capital etc. This means you can benchmark your financial plan to that of other businesses and maybe weed out the errors.
Watch out for the hidden freebies!
Some of the best advice when starting your own business is to place a value on your own time. This is because it’s very easy to fall into the trap of thinking that your time is free. Let’s look at a few examples:-
With the invention of the internet it has become relatively easy task to gather new prospects and promote to them. Now just because it’s easy to write an email to your list of prospects doesn’t mean it’s free. Who is coming up with the promotional idea? Who is constructing the offer?
Free activities have what is known as opportunity cost. This means that if you are doing activity A and you could be doing activity B then you may be losing out because activity B might be more valuable to your business.
If you are doing the book keeping then you have to consider that your time would have been more profitable calling prospects, or visiting existing clients, and this is why it is important to place a value on your time.
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