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Why You Must Know Your Start-Up Costs Beforehand

Is a specific amount of money enough to cover for start-up costs of different types of businesses? Is one budgeting model valid for different industries? Is it okay to see through your costs as they come instead of preparing for them in advance? The answer to all these questions is a resounding ‘no.’

Take example of a shoe factory and a security agency. The former is a capital-intensive business, whereby there are going to be a great deal of initial costs to buy the machinery needed for production. However, since it would employ a relatively less amount of employees, there are not going to be much subsequent costs.

As for the latter, there are not going to be any major initial cost, as it is a service that the business is providing. However, its labor-intensive nature would mean that a large amount of capital would go towards paying wages. The same rule applies when businesses are in different industries with different levels of risk.

This shows that there is a dire need for businesses to get a strong grip of their start-up costs. Start off by dividing costs. Firstly, there are going to asset costs, such as machinery, furniture, land, et cetera. These are non-recurring costs that buy you assets that are expected to serve you for a long time. Then we have the recurring costs, which come in form of bills, salaries, taxes, et cetera. These must be paid regularly and are usually dependent on the scale of your business. Not accounting for these costs differently, given their differing nature, is rookie mistake that you must avoid.

Starting a business without a proper business plan that thoroughly addresses all the different types of costs that your business would have to pay for is a recipe for disaster that you must avoid. You must know what assets you need to buy and what you can do with leasing. Then, you have to get an accurate estimate of how much you would be needing for the expenses every now and then. After that, you must set aside an amount for contingencies, as you may never know when unseen circumstances could pile up your costs further.

This way you are better prepared for what lies ahead, and are not left sweating when the exchange rate takes a dip and you are unable to import raw materials because you didn’t incorporate any such shift when deciding how much capital to start off with. With a plan of action, you know exactly how much you need, how much you already have, and what size of a bank loan you would need approved.  Carrying out these calculations and estimates also put light on viability of different business proposals, allowing you to see exactly which opportunity is worth pursuing.

So, once you have a plan, all you need to do is arrange for the funding and you are good to go. However, this is easier said than done. New businesses find it rather difficult to get access to even the smallest of loans. If you can relate to this, and if you have accumulated rejections after rejections on your loan applications, you need to look for an alternative.

One such provider you can turn to in such a situation is First American Merchant (FAM). With a client-base made up of a large number of newly formed businesses, FAM specializes in catering to the needs of merchants that cannot get access to funding elsewhere by providing them with a merchant cash advance. All it asks of you is to fill in a simple application and let it take care of the rest. With an enviable reputation in the industry and experience that you can rely on, FAM surely knows how to put a smile on your face.