Can You Afford to Start Up?
To avoid underestimating your set-up costs, try to be as accurate as possible with your forecasts and calculations. Realistic forecasts can boost your confidence in your ability to meet regular and ongoing commitments and give you a more accurate idea of when you can expect to reach key financial milestones.
Get your figures checked
Give your figures to an accountant to check. As they deal with many businesses, they can help you to make your forecasts realistic.
Calculate your initial set-up costs
You may already have an idea of some of the costs involved in setting up your business, but getting those figures down on paper and doing some fundamental calculations give you the facts in black and white.
Calculating these costs also gives you a chance to consider what's necessary (elements you must have to get your business operational) and what's desirable (elements that you'd like but may have to discard or revise in the early stages).
Initial set-up costs might include:
- locating suitable premises
- buying plant and machinery
- buying furniture and fittings
- buying general office equipment
- buying technology
As you research and record each expenditure item, try to source credible estimates and prices, but be aware that costs sometimes come in higher than you expect, so budget accordingly.
Also, try to be resourceful. Consider how often you'll use a particular asset and look at possible alternatives. For example, do you have to buy a new or top-of-the-line item, or could you lease, hire, or buy second-hand equipment instead?
Buy at auction
Online auctions and auction yards can be great sources of cheap second-hand equipment. Keep your eye on the local paper, register on sites like Trade Me, or ask your local business contacts to let you know of any upcoming sales and auctions.
Hidden costs
Remember to factor in the 'hidden' costs of setting up a business, too; the 'little things' that may not be quite as obvious as a building, plant, or machinery. These costs may be comparatively small, but they all add up and could significantly affect your ability to set up.
- Deposits or advance rent/lease payments.
- Connection charges such as electricity, phone, and internet.
- Any insurance premiums payable in advance.
- Distribution costs.
- Travel costs.
- Website-development costs.
- Stationery, promotional material, and signage.
- Wages/PAYE/KiwiSaver if you intend employing staff.
- Professional fees (accountant, lawyer, or business consultants).
Avoid over-investing in fixed assets
Unlike day-to-day business expenses, assets are depreciated over a period of time, and you can't claim the full amount spent immediately. If you're unsure how depreciation works, talk to an accountant.
For a few dollars more
Remember that quotes and estimates can differ from actual costs. To avoid any nasty surprises, allow a few dollars more and build in a percentage on top of your estimates to meet additional 'hidden' costs that can take you over budget.
Source: Wikibooks, https://en.wikibooks.org/wiki/Sustainable_Business/Can_you_afford_to_start_up%3F
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