Most small businesses fail within a year of being established. One of the most common causes of this failure is the inability to cope with their expenses. However, with proper planning and a few helpful tools, you can avoid any surprises that can cripple your new business.
If you own a startup or are planning to build one in the near future, here are some of the ways that a startup calculator can help you understand your business costs:
You get the full picture
One of the crucial first steps when establishing your startup is to figure out how much money it will take to get your plans off the ground. The exact costs will depend on the type of business and industry you are getting into. For example, online businesses have less overhead costs than brick-and-mortar ones.
Here are some common costs associated with starting a business:
- Market research.
- Fees for legal and accounting services.
- If you are renting office space: transfer stamp duty, tenancy bond, utilities installation fees and bond, equipment, furniture, and fixtures.
- Marketing costs.
- Licenses and insurance.
- Hiring and training costs, as well as staff wages (including your own).
A business calculator will help you figure out what these costs amount to and estimate how much you’ll need in order to fund your initial expenses. Essentially, you’ll understand how much capital you need to raise to sustain your business while it is still trying to take off.
At the same time, it will also help you determine which costs are one-time costs and which ones are on-going. Remember that there are some costs that are recurring, either on a monthly, quarterly, or yearly basis. Using a startup calculator when you are making your business plan will help you identify them early on and avoid expensive surprises later on.
It helps you plan a funding request for lenders
With a startup calculator, you’d have a better idea of how much capital you’ll need when you are looking for funding for your startup. A good rule of thumb when using the calculator is to account for enough funding for at least six months’ worth of expenses. In certain competitive industries, you might need to have at least a year’s worth.
The cost forecast that you get when you use a startup calculator will enable you to have enough funds to cushion you while you work on marketing your brand and attracting customers. It also means that you shouldn’t expect your revenue to cover your costs during this early period.
It’s also a good idea to draft a formal report of all your expected costs. This should be in a clear and easy-to-understand format that you can present to potential lenders. This will help them better determine your business’s profit potential, since they can easily compare your expected costs with your projected revenue.
It helps you attract investors
It has been often said that the process of seeking investors is an investment in itself. This means that you should never face them empty-handed. To convince prospective investors that your startup is worth their time and money, take advantage of the tools that can make your research more comprehensive and accurate.
A startup calculator will allow you to provide them with a realistic pitch. It will allow you to clearly describe the amount of investment needed and for how long. This will also give them an objective picture of when their contribution in your business will start seeing returns.
You can estimate when you’ll turn a profit
Calculating profitability is one of the top uses of a business calculator. For companies, no matter if it’s an established one or a startup like yours, accurately measuring profitability is a crucial aspect of effective finance management.
One of the most commonly used metrics to estimate profitability is net income. It is the amount of revenue that remains after taking into account all debt, expenses, taxes, and income streams. When you are just starting out and you don’t have the exact numbers yet, a business calculator will let you come up with estimates so that you can still have a rough approximation of whether or not you’ll be able to meet your expectations for profitability.
A startup calculator allows new business owners to get a clear picture of the costs associated with getting their plans off the ground. It’ll also help them come up with a more accurate report that lenders and investors can use to determine their profitability. More importantly, a startup calculator helps business owners determine whether or not their plans will be profitable and sustainable in the long run.