Setting up a business?
This page will help you to work out the costs of running a small business.
NOT A SUBSTITUTE FOR TAKING ADVICE FROM AN ACCOUNTANT
The big secret to a successful business of any size, from the local craft shop at the markets to IBM, is:
Income = money in less money out
It's called profit, and before you make any decisions about opening and running a business, you need to have a clear idea of the expenses you will have to cover, and how much work you will have to do before you start making a living for yourself.
The difficult part is estimating what it will cost you to run a business, and how much you are likely to earn. The forms on this page will help you find out.
How to use the calculator
Click on the names by each field for hints.
To work out how much it will cost you to be in business, and how much work you will have to do, fill in the forms honestly.
Fill in both sides of the form and the calculator in the top bar will show you how your business will perform. Start by entering your salary.
For example, enter $3000 in the Office Rental field and the calculator will work out that you will need to find 18 jobs each year. That is because the Av price/job has been preset to $2000 so change that to $3,000 and the number of jobs drops to 12.
Now fill in some hours in the right hand form. Put in the 20 hours it might take you to find a client and 40 hours in the "Create" field . Now the calculator works out that you have time to complete 30 jobs each year if you work the average working week and allow yourself four weeks holiday like everyone else.
Follow the example here and you'll get the idea.
Put a link to this page on your site with this code:
<a href="http://webconsultant.co.nz/Business/">Self Employment Calculator </a>
Try it out
Here's an exercise to get you started. When you are entering expenses for the first time it is very tempting to reduce them where possible, and that is obviously a very good thing to do when running a business. However, for this first time through be generous to yourself because there's plenty of time to cut back later. Let's start off with a nice income, a good car, and plenty of time off.
Keep your eye on the line above the forms which will show you your annual expenses, and how many extra jobs you will need to do each year to cover all those costs. You have to fill in both sides to get meaningful answers
- Regular monthly expenses. Assume you will have a good office, somewhere where you be able to impress clients. After you have worked out how long it takes to do one job, you will be able to see how extra jobs you will have to find to pay the rent
- Fill in the other fields generously. You need a good mobile plan with data for your iPhone, a generous land line plan, and when you estimate your vehicle expenses don't forget to include the after market bling.
- Accountants. Absolutely necessary. They will smooth the path with the IRD and they will actually save you more than their fees by making sure you pay as little tax as possible. It is highly likely that a small business will fail if it does not have good financial advice
- Annual replacement costs. Computer/phone - you deserve the best, and your clients should be paying for it. How much will it cost you to trade in that notebook each year? You don't want to be seen with an old phone so make sure you spend at least $1000/yr on a new one.
- Vehicles. How much will it cost you to replace your car/bike/wheelchair each year? What sort of car would you really like? A good BMW will probably only depreciate $30,000/yr, or $600/week
- Software. When you're in business you should be purchasing all your software. You are selling your intellectual property, it's only fair that you should pay for others. It will only set you back about $2,000/yr.
- Salaries. Watch what happens to the number of jobs/year you need to find when you employ a receptionist for $35k/yr
- Sales staff should be high on your list. They drive the business to your door, and if you set it up properly, they will pay for themselves. If you are employing commission sales reps, take the commission off the average contract price on the right.
- Production staff. If you decide to employ a developer, designer or similar, put the total salaries of all of them in this field. Make sure you add to the number of workers on the left.
- Support staff - cleaners, cooks, accounts etc.
- Hidden costs. It costs about an extra 20% of a salary to actually employ someone, so this is worked out for you. ACC levies, insurance, provision of office space and furniture, replacement staff for the four weeks holiday on full pay, so for 4 weeks of the year you will be paying two people to do the same job.
- Your salary. This is left to last in this list because it is the last thing to be paid for in any business. When times are good you'll be making a fortune, but if things slow down, everybody else will continue as normal and your wages will plummet, perhaps even to the point of making a loss. Put in a large, hopeful figure in here.
- How long will it take you to find a client. how many leads will you follow up, how many calls will you make? They all add up and could easily be more than 20 hours. If all your jobs come from recommendations from existing clients you will be much better off
- Interviews and driving to and fro can take up an enormous amount of time if you're not careful. You'll be lucky to get away with only three conversations as suggested here.
- Creative time - estimate how many hours it will take for an average job. Add up all the working hours that everybody on the team does.
- Debugging - no job ever works perfectly first up
- Delivery and training - depending on the project it might take several hours to teach some clients how to use your brilliant CMS
- Account - make sure you invoice them and collect the $$$$
- Finally, estimate the average contract price for a job.
Now start adjusting those costs, reducing the times, or even increasing your contract price until the number of jobs required in one year can be achieved
