How Much Business Startup Capital Do You Really Need?

Posted by Fitz Villafuerte under Business on September 2, 2008

When you’re planning to start a business, these questions are probably the first things that cross your mind.

How much startup capital do I need? Do I have enough money? Can I afford to put up this business?

If you want to calculate the amount of startup capital needed for your business, you simply have to focus on two areas. The first one is the pre-operation expenses and second, the monthly operational expenses.

Having a reasonable assumption of these financial costs will give you a good estimate on how much startup capital you really need to turn your business idea into a reality.

Let’s now look into these in greater detail:

Pre-Operational Expenses
These are the typical considerations for your pre-operational expenses. It’s important to note that writing a business plan will really help you in coming up with a more accurate estimate of these figures:

  • Rent. Most lessors in the Philippines ask for 2 months advance and 2 months deposit.
  • Equipment. The cost of the machinery you need for the business such as manufacturing equipment and vehicles.
  • Appliances. Office equipment such as computers, fax machines, printers and photocopiers.
  • Furnishings. These are the tables, cabinets, chairs and other office furnitures.
  • Leasehold Improvements. Remodeling costs for your desired location such as carpentry and plumbing costs.
  • Licenses, Permits and Insurance. The fees you need to pay to legalize or register your business. This includes the software licenses for computer applications and insurance fees.
  • Subscription fees. Application and installation costs of your telephone line, internet connection and other utility bills.
  • Supplies. Initial inventory of consumable items such as paper, pens, cleaning supplies, etc.
  • Product Inventory. The cost of buying or manufacturing your initial stock.
  • Employee Training. Expenses for the skills acquisition of your staff such as seminars they have to attend or cost of employee manuals.
  • Advertising. Expenses you’ll incur in promoting the business such as signages, media coverage and other marketing costs.
  • Opening expenses. Costs during the official launching or ribbon cutting ceremony, just in case you plan to hold one.
  • Miscellaneous. Always have a little extra for unexpected expenses.

counting-money

Monthly Operational Expenses
You should not expect to break even on your first month of operation. Businesses take time before they start to earn enough to cover overhead costs. Always include these expenses in your startup capital:

  • Lease payments
  • Business loan payments
  • Costs for replenishment of supplies and other inventory materials
  • Advertising and marketing expenses
  • Staff salary, including government fees such as taxes and social security payments
  • Utility bills
  • Depreciation costs and expense budget for repair and maintenance
  • Income taxes
  • Royalty fees
  • Other miscellaneous operating costs relevant to your business

The typical formula is to calculate your pre-operational expenses and add three months worth of your estimated monthly expenses to get your required startup capital. Look into expense management best practices to find out how you can run your business in a more profitable fashion. Take note however that depending on the nature of your business, the number of months of operational costs you need to consider could be more than just three. Other businesses may require six months to a year’s worth of monthly expenses as part of their startup costs.

Moreover, avoid starting a business without enough capital and hoping you’ll get more funding as you go along or when the business officially launch. During startup, it’s important to avoid such unnecessary financial stress and focus more on building your business concept and ensuring that it will comply to your vision.

Once you have a pretty good idea of your needed startup capital, you can now put together a plan to acquire the money you need. You may already have the savings to start or you can begin drafting the business proposal you’ll pitch to an investor.

On the other hand, if your estimates show that you’re unlikely to be able to afford such a business, then you can try to down size the concept or simply find another business opportunity that will suit your budget.

If you want to receive more advice on how to start your own business, then please subscribe to Ready To Be Rich.

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Photo courtesy of matildasheila


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8 Responses to “How Much Business Startup Capital Do You Really Need?”


  1. Nicely says:

    I just want share…

    my officemates and i started a new clothing business with a capital of P2,000 each, we’re four in the group. we meet with a supplier of branded clothes and she sells overrun items from the very factory for almost half the price.

    sana lumago…

  2. Fitz says:

    Uy, good luck on your business venture! :D

  3. another great post from you Fitz, ;)

    i’m also planning to put up a business, hehe, kso wla p budget and your tips here could help me a lot in my future plans. :)

  4. marhgil says:

    i’m actually planning to have my own business in Batangas once I accumulated enough money from my online ventures. this post will surely help me. thanks!

  5. oni osas says:

    i need money for my starting business

  6. katsumot says:

    thank you for posting very useful articles. dito na nga lang ako nag vview ng resources para sa research ko. very helpful at informative.

  7. Azazi says:

    Hi. Nice topic here.
    HOpe you guys can share some advice.

    I have a situation where in lately, I find myself forced to work in a company I have been working with for the last 14 years. Monthly pay isn’t big but it has sustained me and my family living a simple life.

    I am also the breadwinner of my family for almost 10 years already,
    being the eldest and the most responsible-minded of 4 children of my parents who weren’t financially-savvy and smart and were still practising the notion that their children will take care of them when they are old and frail.

    I want to stop/ retire from working for now and pursue other interests and same time also do some small-time business. But as per my computation, I will not generate the required living expenses for the family I carry since I provide/pay the monthly utilities/bills of the house. I also am paying monthly housing loan amortizations to Pag-ibig and I still got 28 years to pay for it although my target is to pay the loan in 12 years only.

    I am single and in my late 30s. My brother who is in mid-30s and single still live with us (my mother and my youngest brother who has Trisomy 21/ Down sysndrome) but cannot be accounted for to share in the payment of bills. He is very irresponsible and mentally/emotionally unable to handle or steer his life to a normal life a man his age should be having, and hard on keeping a regular or stable job. My mother, thinks my brother can live like that way until she dies, and it has been a constant source of misunderstanding between the two of us.

    What I shall do with my desire/plan of putting up a business if I have family members who do not help or understand what I want to do with my life.

    Please share your advices or thoughts on this. Many thanks to all.

  8. neko says:

    My father really like to open a computer shop bussiness. well i’m just wondering about how much does the capital will cost……….?

    and what should be done first?

    thankyou,,

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