Financial planning: Calculating business costs

The family expenses have been calculated, now what about the business? Startup necessities will vary depending on the type of business. To open the doors of a new construction company you need heavy equipment, while a boutique needs clothing inventory.

Once again, you must create financial statements. This time they break out what it will cost to open the doors, and what it will cost to keep the business operating. Most of the numbers you need can be found by calling vendors, suppliers, and professional and government offices.

Some items to consider in startup are the physical property and its condition, inventory, legal fees, supplies and services, and insurance. You'll also need to include advertising costs, because if the public doesn't know you're in business, you won't be.

A basic startup worksheet would look like this:

Once the doors are open, you have to be able to keep them open, so you need to know your operating costs. The Small Business Administration recommends that you be prepared for three months of operating costs, without relying much on income from the new company.

A basic operating worksheet would include the following:

Again, you can get a good estimate of the amounts you need by using that shoe-leather, or calling suppliers and professional and government offices, and checking the reference section of the local library. For a broad overview, the Department of Commerce and U.S. Census Bureau have compiled statistics on assets and expenditures.

To determine the cost of wages, look at the Bureau of Labor Statistics' Occupational Outlook Handbook, check on the minimum wage in your state as listed by the U.S. Department of Labor or call a temporary employment agency to price hiring a temporary worker. Hiring a temp may be a way to get started without your having to foot the bill for the benefits that attract quality employees.

If you total up three months worth of operating costs (you should already have the cost of living portion, if you calculated the family budget) you have a good idea of what you need to go into business. The operating cost statement, coupled with the net worth statement, will tell how much you can personally afford, and how much you'll need to finance. Investigate financing options in Capital Sources.