The Agile Startup: Quick and Dirty Lessons Every Entrepreneur Should Know

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You have to estimate expenses to figure out your breakeven and create financial projections. These expenses include everything from the purchase of raw materials to employee benefits. It’s not uncommon for ever-optimistic entrepreneurs to underestimate expenses significantly. This mistake can lead your startup to an early grave if you’re not careful. Take a realistic approach and fully load your expenses by taking into account all costs, not just hard costs that you pay cash for immediately. Take the founder’s salary as an example. Entrepreneurs always try to exclude their salaries in initial projections, usually resulting in quickly profitable projections. This doesn’t work because you need to live, and you will need to pay a salary when you hire someone to take over your responsibilities. You should include a minimum wage salary for yourself at the very least. Employee salaries are another example—be sure to include the total cost of your employees including benefits, taxes, workers comp, and so on. A good rule of thumb to estimate total costs is to add 20 percent to the salary.

While keeping expenses low is understandable and expected, you never want to mislead yourself about the financial viability of the company. Being totally honest might reveal that what you’re planning doesn’t make sense, which gives you an opportunity to fix it before it’s too late.

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