Calculating the cost to start your business

Once you’ve got a business idea in mind it’s handy to know how much money you’ll need to get up and running.

3 minute read

Starting Up calculating the cost to start up

Determining how much you’ll need to start your business is often a good idea before you intend to launch. Your business will only succeed if you can find the funds to get going and keep going, even if your business is a great idea.

It doesn’t matter how big or small you intend your business to be. It’s the same calculation to know how much it’ll cost to get set up. Your start-up costs could be minimal (a computer and your bedroom floor) or substantial (specialist equipment, vehicles and recurring costs like rent).

To help you determine if you can afford to start, follow this three-step process:

1. Work out your up-front costs

Before you open your doors, working out your up-front costs will help as a first step. You’ll have a series of one off costs that you won’t need to pay for again for some time, such as:

plant, machinery, and vehicles
furniture and premises fit-out
initial inventory or raw materials
deposits, legal fees, licenses
computers, software, and phones
all the other little bits and pieces (domain name, website, business cards etc).

If you’re unsure how to get accurate costs, do an online search and contact key suppliers directly to get a good guide. Specialist or custom costs such as bespoke software or industrial machinery may be harder to find, and you’ll need to use an estimate. Ask other businesses or rely on your own industry knowledge.

Use our financial feasibility template (PDF 36KB) to help tally up everything you need.

2. Calculate money in reserve

Unless you’re extremely confident that sales will cover all your regular outgoings on day one, chances are it will take some time until you’re making enough money to pay for your regular fixed monthly expenses (and therefore break-even). If you’re confident of immediate sales (have contracts in place, confirmed advanced work, strong indication of demand) then you may only need a month or so in reserve. But if you’re unsure or the lead time to get customers is long, then you may want longer, perhaps 3-6 months of these overheads in savings to cover these expenses.

Typical costs include:

marketing and generating sales
utilities (power, phone, internet)
finance costs (business loans, overdrafts, and lease payments)
employees, rent, sub-contractors
software and subscriptions.

The amount of spare cash to help pay these costs is often called ‘working capital’ and varies (low if self-employed and working from home or high if lots of employees and paying rent).

3. Estimate the cash you need

Now you have a better idea of your up-front costs and what you need for working capital. Add these together and you can figure out how much money you will need to start your business.

Review your numbers and determine when you could start-up by identifying a minimum viable total. Think about removing anything that isn’t mission critical, and find economical ways to get started, like:

buying second-hand equipment
borrowing what you need at least in the short-term
leasing or renting instead of buying
asking suppliers for extended terms
asking for favours or getting friends and family to help
delaying any purchases until the business can afford them.

Anything you can do to reduce your start-up costs will lower the amount you may have to find.

As you prepare your final figures, remember to consider any changes in costs (especially if there is a time delay between researching your costs and starting) for example:

a falling NZ dollar for imported equipment
changes to supplier prices or conditions
new licence or legislation compliance costs
increases in ongoing expenses.

If you need help calculating your overall start-up costs, talk to your banker, accountant, or business adviser to review your figures and double-check you haven’t missed anything.

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This material is for general information purposes only and does not constitute, and is not intended as, personalised financial advice or as a replacement for legal advice. BNZ strongly recommends you seek advice specific to your personal financial or legal situation from a qualified adviser. Neither BNZ nor any person involved in the material accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of the content.