ComplianceFinanceTax & AccountingFebruary 22, 2021

Case study: Figuring startup costs

Many activities must be undertaken and expenses incurred before you are fully ready to open your doors for business. Here are some things to consider.

Suppose you want to open a sub sandwich shop located in Cedar Rapids, Iowa. Here's a case study that looks at the startup dollars you'll need to get your business off the ground.

In this example, the business will be opened in an existing building, so construction expenses relate to remodeling, rather than initial construction. Because most types of food preparation are equipment-intensive, fixtures and equipment are the largest component of the startup costs.

Startup Dollars Needed
Beginning inventory $1,500 Includes food per bid from distributor
Building construction $0 Leasing existing building
Cash $300 Only need cash for register
Decorating $0 Included in remodeling below
Deposits $500 Includes $400 electric and $100 phone
Fixtures and equipment $15,500      Includes bids on all equipment
Franchise costs $4,000 Fees, training, signage, and supplies
Installing fixtures & equipment      $2,500 All per bids
Insurance $3,000 Bids from the insurance carrier
Lease payments $7,500 Three months of lease payments
License and permits $750 Includes sales and restaurant permits
Miscellaneous $1,000 Design fees on remodel
Professional fees $2,000 Cost for attorney to set up a corporation
Promotion $1,500 Quarterly newspaper ads

$1,200 Monthly hotel room "town guide" listings

$600 Flyers and handouts

$500 Frequent diner program

$2,500 Electric exterior sign
Remodeling $8,000 Cost of leasehold improvements per bid
Rent $0 Facility is being leased above
Services $500 Set up accounting system
Signs $1,000 Bids for inside and outside signs
Supplies $500 Cost of office and employee supplies
Unanticipated expenses $5,485 Computed 10 percent of the total cost
Total startup costs $60,335 This is to get to day one of the business

The startup costs for this sub shop total $60,335. Remember that this is only the money needed to open your new business. You will still have to compute the amount needed to get you through the first few months of the new business.

When seeking financing for the new business, you should match asset life with length of loans, if possible. For example, on equipment with a five-year life, it would be preferable to obtain a five-year loan that matches the equipment life.

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