Understanding how much it costs to start and run a business is necessary before investing or asking for a business loan. By calculating initial outlay and including it in your business plan, your lender will have a better understanding of how profitable the business will be. While you can't estimate virtually all of the costs associated with starting a business, there are basic costs such as equipment, materials, labor, and insurance that can be readily used to estimate initial outlay.
How to Calculate Initial Outlay
Add together all expenses needed to start your business. This list can include:
-Equipment -Rent (if storefront or warehouse space is needed) -Taxes -Cost of product production -Cost for employees -Insurance (health, business, vehicle) -Training and training materials
Calculate increases and decreases to the initial funds used to start the business. This can include:
-Purchasing/producing vs. sales of items (how much it cost to produce items vs. how many items were sold) -Inventory changes -Replacement of equipment
Calculate tax credits received for starting the business. This can include:
-Use of environmentally safe materials -Minority owed business credit -Small business tax credit
Add the final numbers from Steps 1 through 3 to determine the amount of initial outlay.
Subtract initial outlay from the year-end profits to determine how much you actually made from your business.
Initial outlay can be used to determine whether a business venture is worth the investment. By estimating cost and production, you can gain insight into potential profits and losses.