Setting up a business is not a cheap endeavor. There are many startup costs that business owners need to account for. How much cash do you need to start your business and keep it running?
Some of the most common startup costs include licenses and permits, business insurance, office space, and advertising. Naturally, you’ll have to worry about operating costs once your business is off the ground, such as employee salaries, utilities, and plenty more.
When it comes to startup costs, it’s always better to overestimate than to underestimate them. Let’s start by breaking down how to set a realistic budget.
Breaking Down Cash Requirements
The amount of money you’ll need will depend on the type of business, the size of the business, and the location, so there’s no easy answer to how much cash you need. Generally speaking, a business that’s making physical products will need more money than a service-focused business. You can also estimate the costs of basic needs like a computer, phone system, office space, etc.
While it may be more of an investment at first, you can reduce costs in the long run if you implement good data management and machine learning (ML) solutions from the start. The cost of machine learning for a basic ML model is estimated at around $60k over your first five years of deployment, but if you want to create a scalable machine learning model that automatically grows with your business, you’re looking at an actual value closer to $95k over the first five years.
If you’re planning to run a brick-and-mortar business, you’ll need to factor in higher costs for business security. Your best bet to save money is to find a wholesale provider for a push button door lock or similar system. Look for a weatherproof electronic lock with a cylinder to protect your startup. Even if you forgo some of the more costly investments for now, you can still expect to spend at least $50k to get off the ground.
Determining Your Break-Even Point
Once you have an estimate for your fixed and variable business costs, you can work toward establishing a breakeven point, which is the point where your costs are recouped and you can start turning a profit. You may not actually reach this point for some time, but you’ll need to know if you’re on the right track to reach it in a timely manner.
Once you know your fixed and variable costs, you can calculate your breakeven point by dividing your fixed costs by your margin of safety. Your margin of safety is the percentage of your variable costs that you’re willing to lose before your business becomes unprofitable. For example, if you’ve set a margin of safety of 50%, then you can lose 50% of your variable costs and still be in business.
Once you know your breakeven point, you can estimate how much money you’ll need to cover your startup costs. Simply multiply your breakeven point by your margin of safety to get your startup costs. In this example, if your breakeven point is $10,000 and your margin of safety is 50%, then you’ll need $50,000 to cover your startup costs.
Keep in mind, this is just for determining how much money you’ll need to get started. Continuing to run a successful business is a whole other game, and this is where the value of machine learning systems can really come into play. With the right ML deployment, you can train chatbots to answer customer concerns, have all of your business data collected in a single source, and even make predictions about market performance, so your startup can stay up.