-Patrice Tsague, RCE Partner (on left in picture at right)
"For which of you intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it." Luke 14:28
There are two dimensions to start-up cost; the spiritual dimension and the natural dimension.
The spiritual dimension involves the price and sacrifice that you must endure as a new believer before you reach spiritual breakeven. In addressing the multitude, Jesus was mindful that if many of them did not consider this cost before following Him, they would become spiritually bankrupt before the end of the journey.
Spiritual breakeven occurs when the price and sacrifice that you must endure to follow Christ, and the rewards associated with following Him, are equal. Once you reach this point you are about to cross the dimension where your walk with Christ becomes profitable. You no longer look back, you enjoy the fruit of obedience and you are no longer tempted by temporal pleasures.
The natural dimension of start-up cost is typically defined as the pre-opening, one-time expenditures that one incurs to open a new facility, introduce a new product or service, or open a new business. I would like to expand upon this definition to include the operating cost required for the business to breakeven, which may include the owners' salary, if he or she operates the business and does not have any other source of income.
Having said that, I define start-up cost as: the one time expenses required to open a new business until it reaches the point of breakeven. These expenses may include;
1. Business training
2. Business registration
3. Rent for 3 months plus
4. Salaries for 3 months plus
5. Supplies
6. Inventory
7. Business licenses
8. Insurance
9. Advertising for 3 months plus
10. Legal and accountant fees
11. And more
Unfortunately, when many entrepreneurs consider their start-up costs, they do not include everything they will need. Furthermore, they limit their costs to the expenses necessary until the opening day of the business. The consequences of this are: their businesses become under-funded, they experience cash flow shortage, and they may have to close down.
Until you experience breakeven, you are still in the start-up phase. Breakeven is the period in the business when your sales revenue equals your total cost. At this point, you are neither profitable nor do you experience loss. You cannot be profitable until you breakeven. Before breakeven, your business is sustained by the capital investment you began the business with, or the additional capital that you had to acquire after the business started. If you do not have enough capital to last you until breakeven, you may run out of cash and be forced to shut the business down or drastically reduce expenses.
What are the keys to accurately determining your start-up cost?
To determine your start-up cost consider the following:
- Your start-up cost begins on the day you decide to open the business - even though the business may start months (and sometimes years) from the day you decided to start the business. Every cost related to the business, that you incur from the day you decided to go into business, is considered a startup cost.
- Research similar businesses - to ensure that you do not miss anything, talk to other entrepreneurs who started similar businesses and find out the various expenses they had to incur before they started their businesses and how long it took them to breakeven.
- Get quotes from prospective vendors - to ensure that your estimates are accurate, make sure to talk to prospective vendors to ensure that you get up-to-date prices.
- Keep fixed costs to a minimum - many entrepreneurs are so eager to create a perception that they are successful that they commit to fixed costs such as rent and salaries that are beyond their abilities. High fixed costs require a significant start-up cost to cover them. They also lengthen the period that is required to breakeven.
- Consider all the expenses required to breakeven - this is critical because until you breakeven you will need capital to finance the business. Therefore raising capital in the front end makes managing the business easier.
- Consider your cash flow - you may breakeven but still need cash because you have not collected all of your money. Depending on the nature of your business or your collection policy, you may not collect 100% of your receipt on the day of purchase. This can cause you to need cash even though you have the assets in your receivables. When this occurs, you will need to use the cash from your initial investment, or raise additional cash, to fund the business until you are able to collect everything.
Are you considering starting a new business, expanding an existing business or launching a new product? Sit down and determine your start-up cost to ensure that you have enough resources to finish, so the Lord can be glorified in your efforts.
Patrice Tsague is the founder of Nehemiah Project International Ministries (NPIM)
"For which of you intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it." Luke 14:28
There are two dimensions to start-up cost; the spiritual dimension and the natural dimension.
The spiritual dimension involves the price and sacrifice that you must endure as a new believer before you reach spiritual breakeven. In addressing the multitude, Jesus was mindful that if many of them did not consider this cost before following Him, they would become spiritually bankrupt before the end of the journey.
Spiritual breakeven occurs when the price and sacrifice that you must endure to follow Christ, and the rewards associated with following Him, are equal. Once you reach this point you are about to cross the dimension where your walk with Christ becomes profitable. You no longer look back, you enjoy the fruit of obedience and you are no longer tempted by temporal pleasures.
The natural dimension of start-up cost is typically defined as the pre-opening, one-time expenditures that one incurs to open a new facility, introduce a new product or service, or open a new business. I would like to expand upon this definition to include the operating cost required for the business to breakeven, which may include the owners' salary, if he or she operates the business and does not have any other source of income.
Having said that, I define start-up cost as: the one time expenses required to open a new business until it reaches the point of breakeven. These expenses may include;
1. Business training
2. Business registration
3. Rent for 3 months plus
4. Salaries for 3 months plus
5. Supplies
6. Inventory
7. Business licenses
8. Insurance
9. Advertising for 3 months plus
10. Legal and accountant fees
11. And more
Unfortunately, when many entrepreneurs consider their start-up costs, they do not include everything they will need. Furthermore, they limit their costs to the expenses necessary until the opening day of the business. The consequences of this are: their businesses become under-funded, they experience cash flow shortage, and they may have to close down.
Until you experience breakeven, you are still in the start-up phase. Breakeven is the period in the business when your sales revenue equals your total cost. At this point, you are neither profitable nor do you experience loss. You cannot be profitable until you breakeven. Before breakeven, your business is sustained by the capital investment you began the business with, or the additional capital that you had to acquire after the business started. If you do not have enough capital to last you until breakeven, you may run out of cash and be forced to shut the business down or drastically reduce expenses.
What are the keys to accurately determining your start-up cost?
To determine your start-up cost consider the following:
- Your start-up cost begins on the day you decide to open the business - even though the business may start months (and sometimes years) from the day you decided to start the business. Every cost related to the business, that you incur from the day you decided to go into business, is considered a startup cost.
- Research similar businesses - to ensure that you do not miss anything, talk to other entrepreneurs who started similar businesses and find out the various expenses they had to incur before they started their businesses and how long it took them to breakeven.
- Get quotes from prospective vendors - to ensure that your estimates are accurate, make sure to talk to prospective vendors to ensure that you get up-to-date prices.
- Keep fixed costs to a minimum - many entrepreneurs are so eager to create a perception that they are successful that they commit to fixed costs such as rent and salaries that are beyond their abilities. High fixed costs require a significant start-up cost to cover them. They also lengthen the period that is required to breakeven.
- Consider all the expenses required to breakeven - this is critical because until you breakeven you will need capital to finance the business. Therefore raising capital in the front end makes managing the business easier.
- Consider your cash flow - you may breakeven but still need cash because you have not collected all of your money. Depending on the nature of your business or your collection policy, you may not collect 100% of your receipt on the day of purchase. This can cause you to need cash even though you have the assets in your receivables. When this occurs, you will need to use the cash from your initial investment, or raise additional cash, to fund the business until you are able to collect everything.
Are you considering starting a new business, expanding an existing business or launching a new product? Sit down and determine your start-up cost to ensure that you have enough resources to finish, so the Lord can be glorified in your efforts.
Patrice Tsague is the founder of Nehemiah Project International Ministries (NPIM)
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