How do I calculate how much money I need to start a business?

Key takeaways

  • Business cost calculations are an essential component of your business plan.

  • The costs will vary depending on the type of business you operate.

  • There will be once-off start-up costs as well as ongoing fixed and variable operational expenses.

  • Set a target date for when the business will be profitable.

  • It’s wise to add a buffer in your calculations in case sales forecasts aren’t realised.

  • Use your cost calculations to create a monthly budget and manage your cash flow.

Whether you are using your own money or applying for funding, you need to know how much money you need to get your business off the ground. These calculations are included in your business plan document. Read more: Why and how should I draw up a business plan?

Apart from the start-up costs, you will have to pay ongoing operational expenses until the business is profitable. The date that this will occur is based on your projected sales and expenses. Set a target date as part of your planning, and if possible, include a buffer in case reality differs from your projections.  It may take a year or two to become profitable, so managing your cash flow is critical.

The types of costs you will incur may vary depending on the nature of the business:

  • A service business: you market services as opposed to products, and these services can be done remotely or in person. The type of service you provide will determine your costs.

  • An online business: you work in a digital space, so you may have fewer physical or inventory costs but will spend money on marketing and web costs, and also possibly distribution.

  • A brick-and-mortar business: you sell directly to your customers, so you will need physical premises as well as inventory and equipment, and also possibly some licences.


Before you open your doors for business  

Your start-up costs are incurred once-off and can include:

  • Equipment: computers, printers, phones and any other machinery used to manufacture or package your product.

  • Furniture: desks, chairs, cabinets or other furniture.

  • Vehicles: a car or other vehicles needed to do business.

  • Professional fees: business registration if needed, patents, trademarks and compliance, depending on the type of business.

  • Website: development costs of getting a website up and running.

  • Business premises: transfer and other acquisition costs if you buy premises, or a deposit if you rent.

Operational costs

There will be ongoing expenses; some will be fixed (so you can budget a set amount each month), and others are variable, often impacted by the volume of business. It’s important to budget accurately so you’re not caught short.

Fixed expenses

  • Office space: rent and/or rates

  • Loan repayments: bond repayments if you purchased your property; vehicle or equipment financing; business financing;

  • Insurance: short-term insurance protecting your equipment, as well as business insurance to safeguard against losing a partner or expertise in the business;

  • Accounting and other professional fees: to ensure compliance and submit tax returns;

  • Payroll: the cost of paying yourself and your staff plus any other benefits you offer; and

  • Computer software: annual licence renewals.

Variable expenses

  • Utilities: water and electricity;

  • Office supplies: consumables such as paper, pens, and cleaning agents;

  • Marketing: the cost of using social or traditional media to promote your business;

  • Consulting: the services of a professional to help with aspects of the business, such as legal issues or recruiting staff;

  • Tax: you would need to pay tax on your profits;

  • Website: ongoing hosting, maintenance and content creation;

  • Service charges: credit card or loan interest and banking fees you may incur;

  • Raw materials or inventory: if you are selling a product, you will need materials to manufacture or package it; and

  • Delivery costs: transportation and delivery of your product to the consumer, retailer or wholesaler.

Don’t forget to include a buffer

Your entire business plan and sales projections are based on assumptions, but reality may be significantly different. There are many unknowns when starting a business and conditions can change quickly. Create a buffer so that your business can stay afloat if the worst happens. If you can, budget so that the business can continue to operate for up to 12 months beyond the targetted date by which you expect your business to be profitable.

Budget in action

Once you have calculated all your operational costs, establish a pricing structure for your product or service.

Then create a detailed operational budget for your business and monitor it regularly to ensure that you stay on track. At the same time, track your sales in line with your targets and adjust your budget if there are any changes in expenses or revenue.

This is part of managing your cash flow, which is a continuous process to ensure that your business remains on track and is successful and sustainable in the long run.