How to Calculate Initial Outlay

Understanding how much it costs to start and run a business is necessary before investing or asking for a business loan. By calculating initial outlay and including it in your business plan, your lender will have a better understanding of how profitable the business will be. While you can't estimate virtually all of the costs associated with starting a business, there are basic costs such as equipment, materials, labor, and insurance that can be readily used to estimate initial outlay.

Difficulty: Moderately Easy

Instructions

How to Calculate Initial Outlay

1. Add together all expenses needed to start your business. This list can include:
   
   -Equipment
   -Rent (if storefront or warehouse space is needed)
   -Taxes
   -Cost of product production
   -Cost for employees
   -Insurance (health, business, vehicle)
   -Training and training materials

2. Calculate increases and decreases to the initial funds used to start the business. This can include:
   
   -Purchasing/producing vs. sales of items (how much it cost to produce items vs. how many items were sold)
   -Inventory changes
   -Replacement of equipment

3. Calculate tax credits received for starting the business. This can include:
   
   -Use of environmentally safe materials
   -Minority owed business credit
   -Small business tax credit

4. Add the final numbers from Steps 1 through 3 to determine the amount of initial outlay.

5. Subtract initial outlay from the year-end profits to determine how much you actually made from your business.

Tips & Warnings

• Initial outlay can be used to determine whether a business venture is worth the investment. By estimating cost and production, you can gain insight into potential profits and losses.

References

• Case study for initial outlay