How to use the startup cost calculator
- List your one time costs, such as equipment, permits, starting inventory, branding and deposits.
- List your monthly costs, such as rent, payroll, insurance, utilities and marketing.
- Enter how many months of costs you want to fund before the business can pay for itself, and any monthly revenue you expect in that time.
- Set a contingency buffer and your own money available. Read the total cash needed and the amount you would have to find elsewhere.
Formula
Net monthly burn = monthly costs - expected monthly revenue, never below zero
Runway cost = net monthly burn x months funded
Total needed = (one time costs + runway cost) x (1 + buffer %)
Funding gap = total needed - your own money
Revenue is assumed to be steady during the runway. A ramp up is better handled by lowering the revenue figure to a cautious average.
Worked example
A shop has $17,600 of one time costs and $6,800 of monthly costs, and wants 6 months of runway with a 10% buffer. Runway cost is 6 x $6,800 = $40,800, so the subtotal is $58,400 and the total is $64,240.
If the shop expects $2,000 a month of revenue during that time, the burn falls to $4,800 and the total becomes $51,040. With $40,000 of the owner's money, the gap would be $11,040.
Why runway matters more than the launch bill
Many new businesses can afford to open but not to wait for sales. Funding several months of fixed costs protects you while customers find you. Be cautious about revenue: it is better to plan on slow growth and be pleasantly surprised than to run out of cash in month four.
Do not forget your own pay
If you need income from the business, include it as a monthly cost. Also add taxes, loan payments and replacement of equipment. For how much to charge so the numbers work, see the break even calculator and the profit margin calculator. Freelancers can set a rate with the freelance rate calculator.
Choosing a buffer
Plans can run over budget, and the 10% default is only an example, not a measured overrun rate. A first time project, custom build out or uncertain suppliers might call for more. Raise the buffer until the total feels safe, and keep a list of what you would cut first if cash gets tight.
Assumptions and limits
- Every item, amount, the runway and the buffer are your own inputs or examples. Nothing is a benchmark for any industry.
- Costs and revenue are steady each month across the runway.
- Taxes, interest on borrowed money, owner pay and seasonal swings are included only if you add them.
- The result is a planning aid, not a forecast or financial advice.
Frequently asked questions
How much money do I need to start a business?
Add your one time costs to several months of fixed costs and a buffer. The answer depends on your plan, which is why this tool starts from your own list rather than an average.
How many months of runway should I plan?
Enough to reach steady income with room for delays. Many owners choose several months, but the right number depends on how fast you expect customers and how quickly you can cut costs.
Should startup costs include my salary?
If you need to draw pay from the business, yes. Add it as a monthly cost. Leaving it out is a common reason that real cash needs exceed the plan.
What is a contingency buffer?
It is extra money set aside for costs you did not foresee, expressed as a percent of the budget. It reduces the chance of running short when something costs more than planned.