Estimating Expenses for Your Startup

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. Read the rest of this entry »

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