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Startup Costs for SME’s

What is a Startup Cost?

Non-recurring costs associated with setting up a business, such as accountant’s fees, legal fees, registration charges, as well as advertising, promotional activities, and employee training. Also called startup expenses, preliminary expenses, or pre-opening expenses.

Startup Costs for SME's

Let me clarify that this discussion pertains to small and medium size enterprise startup costs and not about capital budgeting. Any project that an entrepreneur wishes to undertake has four factors to be considered.

  1. Men
  2. Material
  3. Machine
  4. Money

Finance is the lifeblood of any business and to be successful, one must, inject sufficient capital into it. Many businesses fail because of under-capitalization.

Seed Money Requirements

To determine how much seed money you need to start, you must estimate the costs of doing business at least for the first year. Expenses may be categorized as ‘one-time costs’ such as the fee for incorporating your business or the price of a sign for your building. Some will be ‘ongoing costs’, such as the cost of utilities, inventory, insurance, etc.

 There is a pressing need for you to bring enough working capital to run the day-to-day business affairs. Without a projected fund flow statement and proposal, no bank or financial institution shall offer you long term loans to run the business. First of all, you need to write the business plan and ask yourself the following questions.

Ask yourself these 20 questions to make sure you’re thinking about the right key business decisions:

  1. Why am I starting a business?
  2. What kind of business do I want?
  3. Who is my ideal customer?
  4. What products or services will my business provide?
  5. Am I prepared to spend the time and money needed to get my business started?
  6. What differentiates my business idea and the products or services I will provide from others in the market?
  7. Where will my business be located?
  8. How many employees will I need?
  9. What types of suppliers do I need?
  10. How much money do I need to get started?
  11. Will I need to get a loan?
  12. How soon will it take before my products or services are available?
  13. How long do I have until I start making a profit?
  14. Who is my competition?
  15. How will I price my product compared to my competition?
  16. How will I set up the legal structure of my business?
  17. What taxes do I need to pay?
  18. What kind of insurance do I need?
  19. How will I manage my business?
  20. How will I advertise my business?

Courtesy – http://www.sba.gov/

See ‘Short Term Financing’ to know more about financing your business.

The term finance sanctioned in the form of ‘Term Loan’ is required for

  • Land and site development
  • Building and civil works
  • Plant and Machinery
  • Installation expenses and
  • Miscellaneous fixed assets which comprise vehicles, furniture and fixtures, office equipment, workshop and laboratory equipment, distribution of power and water supply etc.
  • Expenditure on infrastructure facilities like water supply, power connection, roads, transportation etc., has to be particularly considered if the units are located in economically backward areas.
How to estimate startup costs for a small business
Startup Costs