Case Study: Figuring Startup Costs
Many activities must be undertaken and expenses incurred before you are fully ready to open your doors for business. Here are some things to consider.
Suppose you want to open a sub sandwich shop located in Cedar Rapids, Iowa. Here's a case study that looks at the startup dollars you'll need to get your business off the ground.
In this example, the business will be opened in an existing building, so construction expenses relate to remodeling, rather than initial construction. Because most types of food preparation are equipment-intensive, fixtures and equipment are the largest component of the startup costs.
|Startup Dollars Needed |
|Beginning inventory ||$1,500 ||Includes food per bid from distributor |
|Building construction ||$0 ||Leasing existing building |
|Cash ||$300 ||Only need cash for register |
|Decorating ||$0 ||Included in remodeling below |
|Deposits ||$500 ||Includes $400 electric and $100 phone |
|Fixtures and equipment ||$15,500 ||Includes bids on all equipment |
|Franchise costs ||$4,000 ||Fees, training, signage, and supplies |
|Installing fixtures and equipment ||$2,500 ||All per bids |
|Insurance ||$3,000 ||Bids from the insurance carrier |
|Lease payments ||$7,500 ||Three months of lease payments |
|License and permits ||$750 ||Includes sales and restaurant permits |
|Miscellaneous ||$1,000 ||Design fees on remodel |
|Professional fees ||$2,000 ||Cost for attorney to set up a corporation |
|Promotion ||$1,500 ||Quarterly newspaper ads |
|$1,200 ||Monthly hotel room "town guide" listings |
|$600 ||Flyers and handouts |
|$500 ||Frequent diner program |
|$2,500 ||Electric exterior sign |
|Remodeling ||$8,000 ||Cost of leasehold improvements per bid |
|Rent ||$0 ||Facility is being leased above |
|Services ||$500 ||Set up accounting system |
|Signs ||$1,000 ||Bids for inside and outside signs |
|Supplies ||$500 ||Cost of office and employee supplies |
|Unanticipated expenses ||$5,485 ||Computed 10 percent of the total cost |
|Total startup costs ||$60,335 ||This is to get to day one of the business |
The startup costs for this sub shop total $60,335. Remember that this is only the money needed to open your new business. You will still have to compute the amount needed to get you through the first few months of the new business.
When seeking financing for the new business, you should match asset life with length of loans, if possible. For example, on equipment with a five-year life, it would be preferable to obtain a five-year loan that matches the equipment life. See getting a loan for the steps necessary to obtain financing for your new business.
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