How Much Money Do You Need To Kick Start Your Startup?

How Much Money Do You Need To Kick Start Your Startup?

Do you dream of having your own successful startup? The majority of people have this ambition at some point in their lives, but the problem is that when they start their online business, they don’t consider all the factors that could suck up their money. This is one of the main reasons startups fail.

Most people are so focused on the exciting part of starting their e-commerce business that they start without a sustainable business plan and preparation. You know what happens next, right?

Around 90% of startups fail in the first few months. Although there are many reasons for it, 40% of entrepreneurs claimed they ran out of cash after a few months because their startup did not receive enough funding.

You must understand your expenses well to launch a successful startup. Moreover, One lifesaving tip is to overestimate your costs by 20-30% because you never know when some unforeseen expenses or price increase add up to the list.

How To Calculate Funds To Start Your Online Business

First of all, The amount of funding you need to launch a successful startup will vary a lot from industry to industry. However, knowing an estimated amount is critical as you might be raising money for your startup through pitching it to investors or applying for a bank loan. This blog will discuss the exact steps to work it out.

The first step most entrepreneurs start with is research. Here are five useful tactics to get authentic details.

  1. Start with talking to relevant people in your industry. Network as much as you can to soak in all the technical details and estimate operational costs.
  2. Inquire about the estimated cost of your average inventory from various potential suppliers to get the best rate.
  3. Using a startup calculator will also give you an idea of estimated figures.
  4. Take advice from a business or an accounting consultant to make sure you’re going in the right direction.
  5. Interview people who own startups or small businesses to avoid mistakes and get insider details about the cost needed to sustain a business. 

Secondly, figure out the following items to calculate the amount of money you need for your startup.

  • Capital expenditures refer to one-time expenses needed to open the business, such as machinery, equipment, furniture, and a certain inventory amount.
  • Expenses:
    One-time expenses: This includes the logo and website design, down payment on property taken on rent, license, permits, etc.
    Ongoing expenses:  These are recurring costs that include wages/salary, utility bills, rent in certain scenarios, marketing, advertising expenditure, etc.
  • Assets:
    It includes the things you already own, such as physical space, money, some inventory, etc.

Thirdly, you need to plan your startup costs. Now you might ask how? There are two ways to achieve this goal.

First is the traditional method of making a startup worksheet to estimate your initial costs, i.e., the price before launch. Note that it doesn’t include any expenses that occur after a launch, which contains ongoing sales, recurring fees, and so on.

startup online business

This startup worksheet includes a list of startup expenses, assets, and findings.

The second method is the LivePlan method that contains consolidated estimates. The difference between the two ways is that the LivePlan starts when a business begins spending money, while the traditional way begins when the business is launched and earns revenue.

The Liveplan method does not include any difference between launch and pre-launch spendings. If you want to use this method, start with adding revenue and expenses. After that, add assets to it and solve the projected cash flow problem using financing, i.e., by including loans and investments.

Finally, figure out these four key elements to calculate the startup cost.

1. Minimum cost

 Once you follow the steps mentioned above, you will figure out the minimum cost you need to start a successful startup. Minimum price can vary hugely depending upon your business plan and model, along with several other factors. Tailor your minimum cost according to your needs.

You do not always have to break the bank to start a business. Richard Branson built his empire with only £300 and now has a net worth of almost $5 billion. Another famous example includes a big player in the laptop market, “Dell,” which started with a mere 1000 bucks.

2. Projected cash flow (PCF)

Cash flow is money flowing in and out of your business.

To find the projected cash flow start with the money you have in your hand currently and add the money that will flow in and out of your business in the first month. Similarly, make a PCF of 12 months, which is a standard time for it.

Remember, cash flow would be slow in the beginning, so estimate accordingly.

3. Break-even point

This is the point when your business expenses are equal to the profits. You might not think of $0 as an impressive stat, but it predicts that you’re about to become a profitable company shortly.

Break-even point provides us with several useful tidbits such as how much sales you need to make to reach a neutral point and how long it will take to get there.

4. Get to know the professional fees

This expense goes unnoticed almost always, but this is a crucial cost you need to include in your startup cost.

By professional fees, we refer to business advisors that provide specialized services in areas that you don’t know. They may include lawyers and consultants. You might need them for various reasons such as gaining a trademark, legal documents procedure, and so on.

How much money do you need to launch a startup?

To be precise, most small-scale businesses cost around $3000 to launch, while home-based startups usually cost between $2000-$5000.

In a Nutshell

Most startups fail due to financial crises, so you need to research your business’s needs properly before starting this venture. Moreover, calculate the estimated amount of money required to successfully launch your startup before spending any money. 

Make sure to calculate the break-even point, minimum costs, and projected cash flow for this purpose, which will help you determine how much sales you need to make to ensure a profitable setup. 

Now, if you’ve read the above steps carefully, then you’ve done your homework. We wish you the best of luck and hope you will effectively estimate the cost of running a sustainable startup. 

If you need help in setting up an e-commerce website, make sure to reach out to us.

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