The adage that you need to spend money to make money is entirely accurate, especially for entrepreneurs that endeavor to start up a new small business. Depending on your risk profile, it’s possible to spend a few million dollars to establish a new company, particularly for certain industries like restaurants.
However, most new business owners need to prove their concept with the smallest amount of capital as a first step. So, what is the minimum amount an owner should budget for? Here’s a breakdown of the top 5 cost areas related to starting up a small business.
Business setup costs = $700
Once you’ve settled on your product or service concept, it’s time to legitimizing the business. This includes name searches, registering your corporation and getting licenses and permits. If you live in Calgary, then you can go to any Alberta Registry to take care of these requirements. We recommend Registries Plus.
Operating costs = $2800
This area can vary significantly depending on the type of business. Some need to lease a vehicle, while others need to lease a retail or kiosk space. In any case, all businesses require a location from which to operate. Most new businesses should budget for a 6 month proof-of-concept period. Based on our experience, it’s prudent to assume $250/month.
The other operating costs will be a computer, a phone and possibly insurance. For the same 6-month period, you can assume these costs to be approximately $1300.
Website costs = $120
There was a time when creating a website was a significant cost and undertaking for a new business. Much has changed in the last five years with the introduction of so many user-friendly website building tools. We recommend WordPress; which will give you a website template, a custom URL, web hosting and support for less than $11/month.
Marketing collateral costs = $500
At this point, you need to give your business an image. This will require a logo and some basic pieces of marketing collateral. At a minimum you’ll want business cards and brochures, but we also suggesting signage for your vehicle or your storefront. You’ll need to find someone to design your collateral and someone to print the material. The design work can cost about $350 and the printing is about $150.
A launch event or advertising costs = $3500
Now that your business is setup, it’s time to start acquiring customers. A small investment is necessary to generate awareness and demand for your business. This can be a radio campaign, a launch event or an online pay-per-click campaign. A standard radio campaign will cost approximately $3000, a launch event with radio support and signage is about $4000 and a standard pay-per-click web campaign is about $3500.
Certainly there are many business that find success with smaller startup costs, like tradespeople who often need little more than a network of friends and a cell phone. However, one of the biggest mistakes we see new business make is to short-change the startup capital. If you budget for $8000 to $10,000 and find success for less, then that’s great. But if you budget for a few thousand only to find customers aren’t knocking on your door, then you might find yourself in a position of not having the resources needed to succeed.