Startup resource estimation & cost calculation

Estimating business requirements and start-up costs

Having a business idea in mind is one thing but putting together the requirements for the business is quite another. Entrepreneurs are often surprised to find that what they thought was a relatively simple business idea actually takes so much to make it work. The key business requirements around which research should be done and estimates arrived at include: equipment requirements, raw material requirements, support material requirements, personnel requirements, legal and administrative requirements and the time to launch. The process of converting the idea to reality is often requires a great deal of the entrepreneur’s time, effort and money that are often under-estimated when plans for the business are being made. As a result, many businesses often take longer to get off the ground than was originally thought and many become under-capitalised from the start because of under-estimation of the size of the costs involved in getting the business off the ground.

It is important to visualize the business in your mind and therefore, begin to get a sense of what it will need to begin operations. It is also useful to visit similar businesses to the one you have in mind to get a fuller appreciation of what your business will need to run efficiently. To avoid being overwhelmed, these needs should be categorised and later sequenced. Each category of the requirements [equipment, raw materials, etc.] should be itemised and costed. A work breakdown structure can be useful to visualize these.

Costing

After developing a visual of various processes that are involved in the business, an allocation of costs to each category of activities in the business needs to be done based on research and estimation of the costs expected to complete the tasks involved in each category of activities.

Resource planning & costing for a business

Activity Budget Activity Budget
1.Location $9100 3.Team Search $12000
Searching for location $2300 Recruitment & selection $3000
Verification of ownership $150 Orientation $4000
Legal opinion $500 Training & deployment $5000
Lease contract signing $50 4.Marketing $17000
Renovations & painting $5000 Signage & design $3500
Licences & permits $1100 Media relations $2700
2. Equipment & Inventory $43 000 In-store promotions $10800
Equipment & inventory specification $100 5. Launch $12400
Equipment & inventory search $7000 Preparations $3000
Equipment & inventory purchase & delivery $31000 Launch day activities $3700
Floor planning & placement $4900 Prizes $5700
Total Budget for the business $93500

 

In addition, the activities identified can be further sub-divided to itemise different components that make up the entire activity. For example, there are several things that are embraced under the headings of searching for a location and renovations identified above. These are presented in the table below. Going to this level of detail increases the accuracy of the costing process.

 

                Location search and renovation activities

  (1.)  Location Module Activities Item Cost [US$] Budget [US$] % of Budget
1 Searching     $2300
a. Phone costs $30 1.3%
b. Fuel & Mileage $200 8.7%
c. Title Deeds search costs $50 2.2%
d. Attorney consultation $150 6.5%
e. Rental $1500 65.2%
f. Inspection costs $100 4.3%
g. Licences & permit costs $300 13.0%
2 Renovations $5000
a. Re-design costs $1300 26.0%
b. Supervision costs [phone, fuel & mileage] $830 16.6%
c. Licences and permits $770 15.4%
d. Contractor costs $2100 42.0%
 
 

 

Sequencing, scheduling and project management

Once the resource requirements and costing have been completed, it is important to go through the process of gathering the required resources. Depending on the budget available, the entrepreneur can do this over time collecting one piece at a time until they have assembled all the pieces required to operate the business or they can do it all at once and at that point have a turnkey business that is ready to operate.

It is also important to plan how the business will be implemented. A business typically has different components that can be treated as modules making it essential to plan and arrive at right decisions about sequencing each module’s implementation correctly. Failure to implement different parts of their business in the right sequence often results in messy implementation that can affect the length of time that it will take for the business to become established or it can affect the prospect success altogether.

The actual implementation of each business module should be treated as a project and therefore, should employ project management principles.

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