It’s hard to estimate expenses for a startup business. Yet those numbers are critical to your success. They are also necessary to convince investors or bankers that your startup will be profitable.
First, a couple of assumptions. I presume you have identified all major expenses. Use a checklist of expense categories like those on the score.org website, so you don’t miss anything. And while some costs are fixed, many expenses depend on your sales projections. We’ll assume you start with reasonable projections for the first two or three years and now just need to identify the related business costs.
Let’s talk about three ways to make the numbers reasonable and believable: competitive quotes, breakdown/roll up, and industry sources. Finally we’ll take a quick look at “free” activities.
1. Competitive Quotes
Researching quotes for outside products and services is THE best way to estimate your costs. Examples of “researchable” costs are rents, build-outs of space, equipment, insurance coverage, attorney fees, outside marketing, PR, software consultants, raw materials, shipping costs, even internet and phone services.
I strongly suggest three competitive quotes for large costs. You will learn about features, and more importantly about exclusions, in the process. The first estimation method, then, is to get competitive quotes.
I wanted to own my own company so for years I collected business cards of company presidents. My plan was that if I collected enough of these “important” cards, someday I could have this title on MY card. I have to say, it didn’t happen overnight as it took a couple of years, but by a strange quirk of fate, an opportunity arose from a very unexpected source and I became President of my own company!
Do you call this luck or positive expectations? Would it have happened with or without my business card collection? I leave that decision up to you. It is like why do I buy expensive face moisturizers when a little Crisco would do the same thing (per my husband). Well, maybe the Crisco would work, but is it worth taking the chance? Your choice. Do you visualize? Does it work for you?