The first step to becoming a successful entrepreneur is to project the start up costs of your prospective business. Costs vary greatly, depending on your product or service, but here are some basic guidelines to help you lay the foundations of your business.
Fixed and variable costs are considered the two major kinds of costs incurred by a startup business. Fixed costs are defined as unchangeable costs that are the same regardless of output - such as rent and equipment. Variable costs are defined as costs that fluctuate depending on the success of the company - such as wages, utility bills and taxes.
Real Estate & Contractors
First and foremost, you'll need an office to base your operations. If you're offering a service or retail goods, then this will most likely cost more, as your business will need to be more centrally located to attract passerby. On the other hand, if your business is simply producing goods that are sold over the Internet or other retail partners, then you can afford to move your business far out into the suburbs for a larger, cheaper complex. You'll also have to decide if you want to rent or buy. Renting may be the more prudent move initially, unless you have massive funds saved up for your venture.
After you choose your office location, you'll likely need to enlist the aid of contractors and interior designers to make your office a functional work environment by remodeling and adding equipment. Make sure you cross check contractors' references as well as their credentials with the Better Business Bureau. Many small businesses have been cheated by unscrupulous contractors, so make sure the contractors give you a fair estimate in writing and allow you to oversee all aspects of the construction.
Depending on the size of your office and the needs of your staff, utility bills can be a huge weight on your bottom line. This includes water, electricity, phone and Internet fees. Some companies have allowed more experienced staff members to work from home several days a week in order to cut utility bills. Many entrepreneurs with foresight will design green workplaces in order to reduce energy costs from the start. Use energy-saving bulbs and water-saving faucets to reduce your bills. Encourage your staff to adopt a paperless workplace, keeping all your records digitally and backed up across several servers.
Take a careful tally of the number of required positions to keep your company operational. Who are the most essential employees? Can several positions be combined into one to be more cost effective? Research other companies in your industry to find the average pay, and advertise your jobs with competitive rates to attract top talent.
If your business requires an inventory of products, then you will have to make a substantial payment to stock your inventory. Calculate the amount of goods you must keep in stock, and research several potential supply partners to find the best deal. If the products are perishable, then you should be conservative with your initial estimates to avoid waste. Companies with over-sized inventories are often considered to be troubled and flirting with financial disaster, and can discourage your investors.
Now that you've gotten your business set up, you will need to get the word out there about your business. Advertising can range from free, such as viral marketing initatives on Facebook and Twitter - to mid-range ones, such as online ads - to high-range ones, such as television ads. Find out which style of advertising is best suited for your business' target demographic and is the most affordable.
Protect Yourself From Early Losses
Many businesses fail to make it past their first year. Business owners should expect to spend several years in debt before finally making a profit. Make sure you don't invest 100% of your available capital into the business. While this may seem like a good idea to avoid interest payments and debt, this will leave you with so little available cash that you may struggle to make ends meet, or close the business prematurely. Teaming up with venture capitalists, angel investors, or even friends and family for investment money can shield you from early losses.
On a monthly basis, make sure your company's cash flow is positive through adjustments to inventory and payroll, and you will be on the right path towards profitability and surviving the early losses that sink many fledgling companies.