Planning to Estimate Costs

One of the frequent questions we are asked as professional business plan consultants is, "How do I know how much money I need to ask for?" Typically, we work with our clients to figure this out, but just because we are paid for our business plan writing services doesn't mean that we don't want to see everyone succeed. Therefore, this page is dedicated to all those entrepreneurs that choose to go it alone when writing their business plan.

When estimating costs for your business plan, you must look several months into the future, typically six. While some businesses are started with pocket-change and others require significant capital to purchase inventory, equipment, etc, it is imperative that you understand your costs before approaching a lender or investor—which is why the business plan is such an effective exercise in weaning out those who "can" and those who "can't." This is oftentimes where we step in and take over, removing the complication of starting from scratch and rolling in the experience of over 1,000 business plans written. It is also why MasterPlans has become "The world's most reliable business planning team."

To determine your start-up costs, you have to recognize all expenses that your business will incur during the start-up phase including: start-up expenses, asset purchases and cash needed. Expenses can be divided into two categories—fixed and variable—however, for the purpose of future planning, you generally want to assume the highest costs as variable expense could be. An excellent resource for cost estimating in the business plan is the Small Business Administration's (SBA) start-up cost estimate calculator. Working through these exercise are sure to help you take the first step in creating your business plan.

Take the time to understand your start-up costs. It is very important that this be a point of confidence for you. It is important that you understand the difference between an expense—something that has no value after you pay for it—and an asset—something that you could liquidate should your business not go according to plan. Expenses are items such as legal costs, utilities, deposits, licenses, etc., associated with the business. Assets are things like the purchase of building, vehicles, furniture, and cash on-hand. However, assets can also be calculated in different categories dependent upon the nature of the asset. But this is another topic for another day.