To own a business, one must determine estimated costs, estimate potential revenues, and create a budget. Therefore a detailed financial plan must be prepared, reflecting the first two to three years of operation. To do this, the entrepreneur must have a good knowledge of finances and budget, which means that a financial plan must be done after creating other aspects of the business plan, which may consist of marketing, operational and resources plans. While determining the financial plan, it is absolutely crucial to estimate costs of the business from the beginning to avoid having to pay for unplanned costs.
Estimating Costs for the Financial Plan
The cost of establishing a business can be very high and therefore it can be a challenging process. That’s why one must consider the costs before coming with a financial plan. According to A South African Perspective by G. Nierman, J. Hough and C. Nieuwenhuizen (2003), there are a number of costs that needs to be taken into account before figuring out a business plan:
The costs of developing your product, including research into the viability of the product and the manufacturing of the prototype,
Market research costs involved in gathering and analysing market and consumer information,
The costs involved in getting business premises,
The costs of machinery and equipment, including installation,
The costs of current assets,
The costs involved in testing your products to make sure that they meet qualitiy standards, as well as obtaining the necessary certificates,
The costs of meeting all legal requirements, such as registering the business, obtaining licences, trademark.
Other than start-up costs, there are operational costs which can differ in the sense that they are paid repeatedly, unlike single expenses. These costs vary significantly from salaries and wages, bank charges, rent payments, to administration costs such as telephone and tax costs, legal expenses and collection costs. Operational costs should be included in the start-up costs for a period of time after starting a business.
Co, Mary Jesselyn ; Gronewald, Jurie ; Mitchell, Bruce ; Nayager, Tres ; van Zyl, Johan ; Visser, Kobus. / Entrepreneurship: Fresh Perspectives. Cape Town : Pearson, 2006.