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Posted: 2006-04-20 / Author: Matt Bacak
Estimating Business CostsEstimating Business Costs: How much financing do you need for your company? What is
the repayment period that you intend to work with? These
questions need to be answered in order to determine the
amount of financing to be obtained. In order to do this,
you will need to know the costs incurred and the estimated
revenue as well as your cash flow circumstances at least
for the first few months of operations. Apart from that,
you will also need to determine the amount that is needed
to start your business. You will probably need to purchase
assets such as equipment, furniture and remodeling costs,
pay for your starting inventory, and have enough for rental
and utility deposits. Furthermore, you will also need to
pay for incorporation fees, insurance and licenses.
The best way to determine your start-up costs would be to
obtain an estimation of these costs from vendors providing
that will be selling the equipment to you. This can be done
by requesting for a list of quotations and specifications
to get a good gauge on the amount that you will be spending
for this. The same process goes in obtaining prices for
your inventory supplies. As for rental and utility
deposits, you can get the help of a realtor to advise you
on the amount that is required for your new premises.
It is good to know that the start-up costs for each
business varies according to the nature of the business. A
service-type business will naturally incur less or no
inventory costs as opposed to a products-based business.
Also, the business owner may decide to start on a
shoestring budget and thus will just work on a low-cost
basis, requiring only bare essentials during the first few
months of operations.
Apart from looking at the start-up costs, operating costs
at least for the first 90 days should also be budgeted.
This would include variable expenditure such as rentals,
salaries, commissions, utilities and inventory
replenishment. It would be good as well to make an estimate
on the expected revenue and collections within this period
of time, and develop a 90-day budget on the cash in-flow
and out-flow. It is also best to keep the estimates
conservative, just in case things do not happen as planned.
With a keen eye on the cash-flow, any shortfall can be
detected which will determine the amount of cash financing
that is required.
It is often a good idea to allow some buffer during the
forecast and budgeting process for contingency purposes in
case calculations were incorrect. On a personal basis, it
would also be a good idea for you to estimate your personal
expenses up to a period of 90 days as well, so that you'll
know the costs that you need to bear during the start-up
phase. This way, you will be prepared with adequate savings
to support you and your family during this critical phase.
It may also be a good idea to develop a
professionally-looking table or spreadsheet to highlight
the details of your cost estimation. This document can then
be used to accompany your proposal to lenders or venture
capitalists for the purpose of obtaining financing for the
business. This way, it will be easier on the decision maker
to consider your application and make a decision on the
approval.
Other than that, you can also make utilize the table for
your own business planning purposes, or evaluation purposes
after the initial 90 days of operations. This way, you will
be able to make better plans for the next operating period
of the business, and thus be also able to plan for the
future with greater precision.
About the Author:
Matt Bacak is Entrepreneur Magazine's e-Biz radio show host is
turning Authors, Speakers, and Experts into Overnight
Success Stories. http://www.powerfulpromoter.com or
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