It is critical that you have the best information you can put together about costs (including start-up costs) of any products that you are considering producing and marketing in your business. It is equally critical that you have the best information you can compile regarding the costs associated with any changes you are considering for an existing business (relocation, expansion, changing product lines), including "front-end" costs that must be invested before production can begin.
The steps in the process of estimating costs are:
Now, compare expected annual revenues with expected annual costs. Are expected annual revenues greater than expected annual costs for each of the first few years of your plan? Do you still think that your idea is a good one? If so, do your estimates show that there will be enough cash left over to meet your personal needs?
If you are not borrowing money to pay for capital items used in your business, your actual annual cash costs may be less than calculated above because you will not be making principal and interest payments on these capital items. However, if the success of your business depends on not having to make such principal and interest payments, you should be sure to do a detailed financial analysis as a part of a full business plan. Otherwise, you may find that you cannot afford to replace the capital items when they are worn out or become obsolete.
to help you develop cost information needed to complete a practical preliminary feasibility study of a potential new business or a potential change in an existing business, and to compare estimated costs and cash needs with estimated revenues.