Once the entrepreneur has given his idea a few turns and begins to believe that the thing can work, he encounters one of the doubts that can disorient him the most to the point of abandoning the idea.

The question is: how much does it cost to create this company?

In reality, behind the question of how much it costs to create a company, there are several different questions, complex and, to top it off, too important to answer lightly. Deep down, the entrepreneur or entrepreneur is wondering:

How much money do I have to “mobilize” in the project?

If I don’t have enough money saved, how can I get the rest?

And, if this goes wrong, how much can I lose at most?

Too many questions without an exact answer.

The most sensible way to approach this question is, as always, to simulate the start-up of the project in the Business Plan , with various modalities if possible, and try to calculate as accurately as possible the economic cost that it may represent.

Stages In The Creation Of The Company

Let us therefore imagine that the entrepreneur decided to carry out the project without having money problems. What steps would he take to start the company?

It is likely that the idea needs to be validated, even partially, in the form of some prototype. We will have to do a little market research . Maybe get a license or register a brand. Of course, give legal form to the project. And rent a place?, and hire someone?, etc, etc.

In the creation of the company we can distinguish a series of more or less defined stages, each one of which implies a certain cost or investment , in short, the “money” contest. Let us therefore analyze each of these stages from the point of view of their cost.

Previous Activities

In certain projects, usually related to some invention or “manufacturable” product, it is usually necessary to make a prototype to demonstrate the feasibility of that product idea .

In addition, this can be useful to attract external investors. In these cases, this prior development can have a certainly high cost, with the aggravating circumstance that it cannot yet be attributed to the company and, therefore, it must be the entrepreneur who assumes, from the outset, that cost. (These costs may later be charged to the newly created company, but that will only be the case if the company is actually incorporated.)

Another habitual prior activity consists of carrying out a market study with greater or lesser rigor. Again, whether this activity is carried out by the entrepreneurial team itself or “professionals” are hired, the cost can certainly be high: travel, surveys, research and development time and expense, etc.

It is convenient to identify and assess these costs in as much detail as possible, since it is possible that from these previous activities the decision may even be made not to start the project. An approximate prior assessment will give the entrepreneur an idea of ​​the “minimum first bet” that must be made before launching into the “definitive bet”.

Constitution Of The Company

Once it is clear what the product or service to be developed is, a legal “framework” will be needed from which to develop that activity. Either personally or through a company, the company will have to be established .

These procedures have an economic cost , sometimes important in relation to the size of the project. It is convenient to take them into account, since it is one thing to believe that they are unnecessary or a useless administrative burden and another thing is that they are free.

Whether these procedures are carried out by the entrepreneurial team itself or if a professional is hired for their management, they can represent a significant expense, both in money and time, which must be taken into account in the cash flow forecast for the first stage of the business ( and in the commissioning schedule).

In this case, it is convenient to spend time detailing the steps and procedures to be carried out, calculating their associated costs. Although the company should only be created once, it is convenient that this stage does not end up affecting the rest of the tasks that the entrepreneur will have to tackle later.

Unfortunately, the worst part of the start-up process of a company is that if it is done well, it does not, in principle, have a major impact on the long-term development of the project; but if it goes wrong…

Establishment

In most cases, with the company established there is not enough to start working. Today it is difficult, for example, to conceive a business without the presence of at least one computer. And if a computer is installed, it would not hurt to check the electricity supply and, by the way, the water supply in case there is a need to go to the bathroom throughout the day. Did someone say phone?

Starting a business , even a “virtual” business on the Internet implies contracting a series of services and incurring expenses that should be foreseen in maximum detail because once “it has started” it is very unpleasant to have to start disbursing money in issues that were not anticipated.

Perhaps part of the feeling that some entrepreneurs have that everyone wants to take advantage of starting a business has its origin in this lack of foresight.

Initial Investment

If, in addition to all these expenses, it is necessary to rent or buy premises, provide the business with special machinery, fill the offices with furniture and office supplies, or buy products for the store, we are facing another important chapter in the analysis of money . involved in the implementation of the project .

From an accounting point of view, some of these concepts may not be expenses, but from the point of view of the entrepreneur’s pocket, they represent a very important chapter capable of exhausting the financial capacity of the entrepreneurial team and limiting the project’s room for maneuver in the early stages of its development.

Another added difficulty in this case is calculating the “optimum size” of this initial investment. After all, you can open the store with a full warehouse, or with only half the goods.

And in this sense, many entrepreneurs opt for the formula of the less the better. How many companies have been incorporated as a Limited Company with a capital of 500,000 pta. for the simple reason that it was “the minimum that had to be put to start”.

Of course, right from the start and without further argument, this reasoning does not say much in favor of the desire for planning of the entrepreneurial team. It is one thing to want to be conservative in the way you apply the available capital and another is that the initial capital must be, by definition, the smallest possible.

Launch

In addition to preparing the business to start working under optimal conditions (that is, making a correct initial investment), it may be necessary to give the business a “special” initial push to get it rolling.

Certain projects will require an initial advertising campaign to attract the first clients and publicize the project. This can be another significant cost that will need to be addressed as soon as possible and can be considered part of the start-up process.

If the available money has run out , due to a lack of foresight, in (unforeseen) expenses for the creation of the company and in filling the warehouses but now there is no money to make itself known, the future of the project is quite doubtful.

Although this does not necessarily end the project, it can force the entrepreneur to have to make decisions quickly (precipitately?) to provide (again) the business with financial strength. In many cases the price to be paid by the entrepreneur is high.

Also within the “launch” period it may be desirable to guarantee a minimum survival period until the business picks up speed and stands on its own.

In other words, this means that someone will have to pay the expenses until the business can, later, pay them by itself with the margin obtained from the sales made. This someone is, of course, the entrepreneur.

Here it is important to have a correct treasury forecast to know, not only the expenses of creating the company but also keeping it running for the time that is decided, regardless of the behavior of sales. Not surprisingly, one of the main causes of failure for new companies is financial exhaustion before achieving a minimum volume of business.

Simple, but fateful. Can you imagine the attitude of the bank manager when the entrepreneur tries to explain to him that it is only a matter of a few months for the business to start operating but now he urgently needs a loan to pay current expenses?

Other “Hidden”Ccosts

In a business creation project there are a series of hidden costs that, although apparently do not imply movement of money by the entrepreneur, they must be taken into account for a correct assessment of the cost of creating the company.

It is typical, for example, for the entrepreneurial team to give up all or part of their salary, until the company can pay this item. Apart from the altruism shown by the entrepreneurs, they should be aware of the hidden “contribution” that they make to the business each month and that, in a few months, can represent a significant amount, even higher than the officially contributed capital, without, on the contrary, obtaining the right to subsequent dividend distributions.

Although at the beginning , in a team of entrepreneurs, everything is illusion and will, if later the results do not come out as expected, unnecessary tensions can originate that will not help the development of the project.

And it’s when these hidden costs come to the surface (for example, if one of the entrepreneurs has to pay a mortgage every month and another lives happily at home with his parents) it is easy to divert attention from the true objective of the business.

Other hidden costs in starting a business may be the simple opportunity cost of continuing in the previous job or of having spent the capital in other, more profitable (or safer) investments, not counting the “extra” hours that are likely to occur. must face the entrepreneur.

These costs are not usually subject to valuation in the process of creating a company. Although the exact calculation of its value does not seem to provide any utility, at least, the knowledge of its existence can help the entrepreneur to make better decisions when planning their business.

Get The Money

If, after analyzing all these aspects, the entrepreneur manages to have a certain idea of ​​how much it will cost to start his project, then he will discover that he barely knows how to obtain the amount he has calculated, since this, curiously, is usually higher than the money he has saved. At this time, there are basically two strategies to match the capital to the project (or vice versa).

The first strategy is to reduce creation costs . In this sense, you can consider a different social form, smaller stocks or start to create the company without exhausting resources in previous studies.

A priori, none of these “techniques” is wrong in itself. The important thing is not to distort the project by introducing certain changes in such a way that a different company is being created from the one designed in the business plan.

The second strategy is, logically, to increase the available capital . Among the most common “techniques” are convincing the family to contribute money, looking for other capitalist partners, visiting (in vain) the branch of the bank of a lifetime or hoping to get one of those fantastic public subsidies that everyone knows about. world speaks, especially politicians.

Once again, these alternatives are totally legal and, deep down, they begin to teach the entrepreneur that it is one thing to plan on paper and another to move in the daily reality of creating and managing a business.

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