Are you dreaming of starting your own business? Whether you have visions of a brick and mortar store or a company that operates entirely online, it’s important to take time beforehand to plan and crunch some numbers. That way you won’t get caught off guard—or be financially and mentally drained—by the unavoidable start-up costs.
To help get you started, go through the following questions so you know exactly what to consider when starting a business. Then, when you’re ready, you can use free online tools like a WACC calculator to calculate initial costs for your fledgling business. With those answers and numbers in mind, you’ll be on the right track to success!
1) What Kind of Business Do You Want?
First things first: You need to decide what kind of business you want to run. A good place to start is to consider your interests as well as your experience. It’s easier to commit yourself to starting a business when it’s something you’re passionate about or have a working knowledge of. Starting your own business is also the perfect opportunity to live out that phrase “Do what you love.”
Once you have some ideas, consider whether any of those match up with needs that people have, or a solution to a common problem. Maybe there’s a business you always wish existed and it just so happens that it lines up with something that you’d like to do. For example, if you’re interested in photography and people in your community are always looking for someone local to take professional head shots of them, then you’ve found a way to combine your passion with a real demand.
2) What are the Initial Start-Up Costs?
When you’ve settled on a business idea, it’s time to move into more of the nitty-gritty details: initial start-up costs. These include expenses as well as the price of assets you need to operate. Here are some of the most common start-up costs that you should consider and tally up:
- Office or business space (including signage, furniture, equipment, and utilities)
- Product inventory (and shipping if applicable)
- Marketing (including branding, website, advertising, and business cards)
- Employee salaries
- Licenses and permits
- Separate business bank account
- Legal counsel
- An accountant
While you’re adding up these costs, it’s a good idea to give yourself a little cushion and overestimate so that you’ll be able to cover any expenses you might have missed or unexpected emergencies.
3) How Will You Raise Capital?
Looking at all your estimate start-up costs, you may be left wondering how you’re going to get enough money to cover all of that before launching your business. That’s where raising capital comes in. Sit down and figure out the best way for you to get funding for your business. This could be getting a small business loan, asking family and friends for help, launching a crowdfunding campaign, or finding an angel investor.
If you decide to go the investor route, remember that the capital they give you doesn’t come without strings attached. Because of this, you’ll need to consider WACC within your business plan. If you’re wondering “What is WACC?” it’s an abbreviation for the weighted average cost of capital, or the rate of return you’re expected to pay your investors to fund your assets.
Instead of going through the long calculation to calculate WACC, you can simply plug your cost of equity, cost of debt, and the corporate tax rate information into a WACC calculator to figure out the cost of raising capital for your business.
4) How Will You Sustain and Innovate Your Business?
Even before your business is up and running, it’s worth planning how you’re going to grow your business to ensure that it doesn’t fail. Depending on your industry, this could mean putting a plan in place to eventually hire top talent who will spur innovation. It could also mean investing in market research so you can stay on top of the latest trends and stay ahead of your competition.
Another way to sustain your business is to build close relationships not only between your employees and various departments but also with your customers. This kind of connection and open communication can be a gold mine for new ideas and business opportunities.
5) Do You Have the Time to Invest?
Investing in your business isn’t just about money—it’s also about time. There’s no denying that all the planning required for starting a new business can take up a significant amount of your schedule.
If you’re going through some major life changes, then you might want to wait until things are a little less stressful before going ahead and starting a business. You may not want to add in the additional risk that comes with opening a new business if your current financial situation can’t handle the strain.
At the end of the day, you’re the only one who can judge whether or not you have the time to invest.
If you’re thinking of starting business, take these five essential questions into account in order to have the information you need to create a solid business plan. During these initial stages, you should also make use of a WACC calculator so you have an even clearer picture of your new business’ finances. Good luck in your entrepreneurial journey!
Cindy is a freelance writer and editor with previous experience in marketing as well as book publishing. Along with her content writing for a diverse portfolio of clients, Cindy’s work has been featured in Thrillist, The Points Guy, Forbes, and more.