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How to Estimate and Calculate Small Business Expenses

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By Edited Nov 13, 2013 0 0

If you are planning to start a business, you will first need to estimate how much your business will cost you per month and year. This will help you define how much start-up capital you will need to secure before opening your doors as well as how much money you will need to bring in each month to keep your business running.


Things You Will Need


Paper

Pen or pencil

Calculator


Step 1

Grab a piece of paper and a pencil. Begin thinking about the type of business that you run or plan to start. If you have created a business plan, review it and take note of all of the items that will require you to send money.

If you have not started your business yet you should determine what your start-up costs will be in addition to recurring monthly and annual expenses. Start-up costs are usually much greater than recurring expenses because you must make initial equipment purchases, put down payments on mortgages or security deposits on rental space, and purchase initial inventory and supplies. These expenses will vary depending upon the business that you will be running. For example, start-up expenses for a manufacturing company will be greater than those for a consulting business. Write down your start-up costs in a separate column from your monthly expenses.


Step 2

Determine how much your business spends or will spend on rent/mortgage payments for office, retail, industrial, or storage space for one month. Write the amount on your list and label it "rent" or "mortgage".


Step 3

List all utility services that your business uses. You list should include electric/gas bills for your office, phone, fax and internet expenses. If you do not yet use these services, estimate the cost. Ask friends or network contacts how much they spend per month on specific utility expenses. Write down each expense and assign a label to it.

Step 4

If you have employees or plan to hire employees to work for your business, write down how much you currently pay each employee (or how much you anticipate paying each employee) per month. You should include yourself on this list.


Step 5

Determine how much your business spends or will spend on loan or credit line payments. Loan payments are usually uniform in amount from month to month. However, if you use a business credit card/line of credit, your payments may increase or decrease per month depending upon how much you charge and how fast you are able to reduce your balance. If these expenses are applicable to your business, write the amount on your list.


Step 6

Determine if your business has or will have any vehicle, transportation or delivery expenses. If you only use a vehicle to commute to your office or business location, the cost of your car and gas payments should not be included on your list because these are technically "personal expenses".


Step 7

Determine any insurance premium costs your business currently pays or will pay. These could include: business liability, workers' compensation, employee health plans, and vehicle insurance. Write down the amounts of your per month cost for each type that applies to your business.


Step 8

Write down estimated monthly costs for office supplies, inventory, licenses, advertising or any other miscellaneous expenses that are specific to your business.

Use a calculator (or manual addition) to add up your start-up expenses. If you have already started your business, you can disregard this step. Label this total "start-up costs". This number is helpful because it is a gauge of how much money you will need to save or borrow in order to get your business off the ground.


Step 9

Add up all monthly expenses from your list. Write the total amount at the bottom of your monthly expense column and label it "monthly expenses". This is the amount that you must spend each month to keep your business going.

Multiply your total "monthly expense" amount by 12. The product of this equation will give you your annual expense amount. This number signifies how much your business must make per year in order to remain viable.


Step 10

Use your expense list to set monthly and annual financial goals for your business. Any amounts that your business earns above the annual expense amount are considered profits. Having several profitable quarters or years is a sign of positive growth for your business. You can also use your expense list to identify unnecessary expenses. Reducing unneeded costs will increase profits.


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