Determining costs and revenue is important for any new business, whether you’ve already jumped into the process or are simply thinking about leaving your day job to start a new business.
The facts and figures will help you figure out if your business idea is viable or not, as well as show you the quickest route to creating long-term profitability.
The amount of seed money you’ll need to begin, along with the total dollars necessary to keep you in business, can vary greatly among various companies.
Here you’ll find helpful hints and tips on how much money is needed to start a new Kiwi business.
Better to Overstate Than Understate Your Cost Estimates
Right from the start, it’s best to add 20-30% to your estimated costs. This will help you plan for any unexpected expenses.
Can You Afford to Start a New Business?
Before you do anything, assess whether you can actually afford to start a new business. The first thing to do is to review your own living expenses.
- What amount of money do you need to maintain your household and lifestyle?
- Where can you trim your personal budget?
- What can’t you live without?
Go over your personal spending line-by-line. Total your monthly rent or mortgage, utility bills, food, school fees, and any other spending you do on a regular basis. After doing so, you may have to decide to sacrifice certain costs while starting your new business. The items leftover that you can’t eliminate will make up your final budget.
Being your own boss can be a great feeling but it also comes with a lot of responsibility. The early days and late nights with little personal time can be stressful. Plus, going without certain financial perks while you make your business a success may take its toll. So be realistic about what you and your family will need to avoid any financial problems.
Count Start-Up Costs
Once you know better the impact a new business can have on your personal budget, it’s time to identify the amount of money needed to start your new business.
One-off start-up costs
Initial start-up items tend to be pricey, including:
- Compliance costs, licenses, or permits
- Purchase or lease of land, buildings, offices, storefronts
- Buying or renting machinery or equipment
- Buying business vehicles
- Getting office furniture or shop fittings
- Securing a domain name and website
- Doing all your branding and marketing
- Registering your intellectual property (IP), patents, and trademarks.
Permanent costs
These are charges you need to pay regularly for the duration of the time you operate. Many business owners refer to these costs as “overheads”.
The frequency of payment for these items is usually time-related, e.g. quarterly rates payments or monthly internet bills.
Frequent fixed business costs include:
- Utilities, e.g. phone and electricity
- Mortgage or rent
- Employee salaries/wages
- Business Insurance
Irregular costs
Expenses that fluctuate depending on the number of sales your business is creating.
- Frequent irregular costs include:
- Stock orders
- Production materials
- Ingredients
Your business accountant can easily run through the estimated expenses and pinpoint anything you might have missed.
Remember you’re also investing time and effort into your business and not just money. However, you may need to ask others for some financial backing, like investors or lenders. It’s always a good idea to reassure them that your past business experience will help make this new venture profitable. If you don’t have a lot of experience then it’s time to start working on the appropriate skills for your industry. Financial investors will also be curious as to how much money you’ll personally be contributing to the company.
Forecast cash flow
After listing your estimated expenses, you can then forecast cash flow over the next 12 months of business. You can use a spreadsheet to calculate your company’s projected revenue and overhead.
It’s not unusual for a new business to operate at a loss for the first year. For this reason, it’s best to be sure you have enough money saved to sustain yourself during the tough times. Forecasting cash flow will help you predict if you’ll need to borrow cash, and if you are even financially prepared to open.
To help estimate income, use data regarding your industry and competitors.
Get professional advice before you start a new business
Any item on your “to do” list probably has a corresponding professional that can assist. For example, you may want to talk with an accountant for useful tips about managing your start-up costs. Try to find a financial advisor or accountant that has successfully consulted companies within the same industry.
Research your competition
Another way to get good insight into the profitability of your business type is to seek out the competition. This may seem unusual but it’s surprising how many competitors may be willing to share their own experiences.
You can also check Inland Revenue and Stats NZ websites for financial data about your competitors and your industry.
Starting a new business is an exciting journey. A well-thought-out cost strategy is essential to establishing your own business. You should also consider purchasing business insurance for your business. Business Insurance is designed to safeguard your contents, stock, and other assets against unexpected events, like fire, storm, theft and accidental damage. Check this website to learn more about this insurance.
