Is it a New Year's resolution to start your company? Here's what sort of dollar signs to factor in. Graphic byMiguel Tovar/University of Houston

The process of opening a small business is already stressful enough without even worrying about how to fund it. But it’s good to start thinking about business costs early in order to know where the money will go.

Sammi Caramela, a Business News Daily contributing writer, said in an article to “be realistic” when considering how much starting a business is going to cost. She mentions that things like office space, legal fees, payroll, business credit cards and other organizational expenses are all things that need to be taken into account before even starting.

Caramela offers five things that prospective business owners should do if they don’t know where to start when it comes to funding their company.

Keep a healthy skepticism

Caramela advises to not invest too much money too quickly. You should have a good level of skepticism to balance the optimism you have going into the process. The best thing to do is to is to “start small” and workshop your idea or product on a very small budget.

“If the test seems successful, then you can start planning your business based on what you learned,” Caramela said.

Don't underestimate expenses

Caramela goes on to note that “according to the U.S. Small Business Administration, most microbusinesses cost around $3,000 to start, while most home-based franchises cost $2,000 to $5,000.”

Obviously, every new business is different and will require different expenses. It’s estimated that a prospective entrepreneur will need about six months’ worth of their starting expenses once they open.

“When planning your costs, don’t underestimate the expenses, and remember that they can rise as the business grows…It’s easy to overlook costs when you’re thinking about the big picture, but you should be more precise when planning for your fixed expenses,” serial entrepreneur Drew Gerber told Caramela.

Don’t let your business fail just because you ran out of money. The excitement of starting a company can cause you to overestimate your revenue and underestimate costs.

Distinguish types of business costs

Caramela offers several examples of the type of costs that perspective business owners should consider.

One-time vs. ongoing costs

One-time costs are those that will only need to be paid once. These mostly occur at the beginning of the process. These expenses included things like incorporating a company and equipment purchases.

Ongoing costs are paid regularly, like utilities.

Essential vs. optional costs

“Essential costs are expenses that are absolutely necessary for the company’s growth and development. Optional purchases should be made only if the budget allows,” Caramela said.

Fixed vs. variable costs

Rent would be an example of a fixed expense because it stays the same from month to month. Variable expanses, however, “depend on the direct sale of products or services.” Expect fixed costs to consume most of the company’s revenue in the beginning. If the company grows and is successful, these fixed costs won’t make or break you.

The Most Common Expenses

Caramela composed a list of expenses new business owners will most likely experience.

  • Web hosting and other website costs
  • Rental space for an office
  • Office furniture
  • Labor
  • Basic supplies
  • Basic technology
  • Insurance, license or permit fees
  • Advertising or promotions
  • Business plan costs

She also provides examples and estimated costs.

ItemEstimated Cost
Rent$2,750
Website$2,000
Payroll$175,000
Advertising/Promo$5,000
Basic Office Supplies$80
Total (Annual)$184,830

Want more information? Here are 14 types of business startup costs to consider when launching your company from NerdWallet.

Estimate revenue

“Bill Brigham, director of the New York Small Business Development Center in Albany, advises new business owners to project their cash flows for at least the first three months of the business’s life. He said to add up not only fixed costs but also the estimated costs of goods and best- and worst-case revenues,” Caramela said.

If possible, it’s best to not borrow at all when starting a new business. “Borrowing puts a lot of pressure on any business” and it doesn’t allow for very much wiggle room in the finances.

Factor in funding

If you’re going to borrow, here are a few things you can do. “Personal savings, loans from family and friends, government and bank loans and government grants” are all sources of funding that potential business owners can utilize. Camarela said that most companies use a combination of several of these methods for funding.

Though self-funding is the best option, there’s also options like business credit cards and angel investors.

Caramela suggests to check out SCORE for trainings and workshops targeted toward small business owners and aspiring entrepreneurs. They also offer some counseling.

What's the big idea?

Starting a business is stressful in any case but now that you know how much money it’s actually going to take, don’t let lack of money stop you from making that next step and starting your business. Remember, skepticism is good but only if it’s a healthy amount. Now you know it’s an expensive process and the different types of funding you will need, but even if you aren’t able to fund it yourself, there are other options out there for you as long as your company is financially able to handle the commitment of borrowing.

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This article originally appeared on the University of Houston's The Big Idea. Cory Thaxton, the author of this piece, is the communications coordinator for The Division of Research.

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$100M Houston VC fund launches to back technical founders

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A new venture capital fund has launched with an initial $100 million mission of supporting founders with innovative critical infrastructure solutions.

Fathom Fund, which is looking to build out a portfolio of advanced computing, material science, climate resilience, and aerospace startups, announced they've launched with an initial close of over $100 million. The fund is founded by longtime investors Managing Partners Paul Sheng and Eric Bielke.

"We believe recent technological advances have accelerated the pace of scientific discovery, increasing the pool of technology companies that can produce venture-scale returns," Sheng says in a news release.

According to the fund, it hopes to bridge the gap for early stage capital for physical innovations and "moonshot" projects.

“What’s lacking in venture is rigorous technical diligence at the early stages and a playbook to scale these innovations at the pace necessary to lead industries," Bielke adds. "With this launch, we are looking forward to supporting founders with some of the most disruptive and novel ideas.”

The founder duo will bring each of the career expertise to their future portfolio companies. Sheng spent decades at McKinsey & Co and was the firm's head of the Global Energy & Materials practice. Bielke is a former director at Temasek’s Emerging Technologies Fund.

Houston is the 4th best U.S. city for Black professionals, report finds

Black History Month

In acknowledgement of Black History Month 2024, a new report compiled by Black employees at online rental marketplace Apartment List has ranked Houston the No. 4 best U.S. city for Black professionals.

Apartment List reviewed 76 cities across four major categories to determine the rankings: community and representation; economic opportunity; housing opportunity; and business environment.

Houston earned a score of 63.01 out of a total 100 points, making it the second-highest-ranked city in Texas for Black professionals, behind San Antonio (No. 3).

The city earned top-10 rankings in three out of the four main categories:

  • No. 3 – Business environment
  • No. 4 – Community and representation
  • No. 10 – Economic opportunity
  • No. 21 – Housing opportunity

Houston is commended for its strong Black business environment and economy, but there is some room for improvement when it comes to housing. Similarly to Apartment List's 2022 report – which also placed Houston at No. 4 – a little less than half (44 percent) of all Black Houston households are spending over 30 percent of their income on housing, which has increased two percent since 2019.

Houston has a larger Black population than San Antonio, at 19 percent, but its Black population share is overall lower than other cities in the top 10.

"Furthermore, the community is well-represented in some critical occupations: 20 percent of teachers are Black, as are 21 percent of doctors," the report said. "Houston is also home to the HBCU Texas Southern University, helping a job market when the median Black income is several thousand dollars above average."

Houston also has the highest rate of Black-owned businesses in the entire state, at 18 percent.

"From the Mitochondria Gallery to Ten Skyncare and Wisdom’s Vegan Bakery, Houston has it all!" the report said.

Here's how Houston stacked up in other metrics:

  • Black homeownership: 42 percent
  • Black lawyers: 14 percent
  • Black managers: 14 percent

Elsewhere in Texas
Texas cities dominated the overall top 10. San Antonio ranked just above Houston, with Dallas (No. 6) and Austin (No. 7) not too far behind.

San Antonio came in less than 2.5 points ahead of Houston with a total score of 65.44 points. The report praised San Antonio's scores across its economic opportunity (No. 2), housing opportunity (No. 7), and community and representation (No. 10). The city ranked No. 20 for its Black business environment.

But like Houston, San Antonio also fell behind in its Black homeownership rates, according to the study.

"While the Black homeownership rate is higher than average at 44 percent, the homeownership gap (Black homeownership rate - non-Black homeownership rate) quite low at -19 percent," the report's author wrote. "Perhaps this could be explained by San Antonio’s overall homeownership rate, which is also lower than the state’s average. Additionally, the lower homeownership gap could explain the cost burden rate also being lower than average at 41 percent."

The top 10 cities for Black professionals are:

  • No. 1 – Washington, D.C.
  • No. 2 – Atlanta, Georgia
  • No. 3 – San Antonio, Texas
  • No. 4 – Houston, Texas
  • No. 5 – Palm Bay, Florida
  • No. 6 – Dallas, Texas
  • No. 7 – Austin, Texas
  • No. 8 – Colorado Springs, Colorado
  • No. 9 – Lakeland, Florida
  • No. 10 – Charlotte, North Carolina
The full report and its methodology can be found on apartmentlist.com.

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This article originally ran on CultureMap.

Houston expert: Can Houston replicate and surpass the success of Silicon Valley?

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Anyone who knows me knows, as a Houston Startup Founder, I often muse about the still developing potential for startups in Houston, especially considering the amount of industry here, subject matter expertise, capital, and size.

For example, Houston is No. 2 in the country for Fortune 500 Companies — with 26 Bayou City companies on the list — behind only NYC, which has 47 ranked corporations, according to Fortune.

Considering layoffs, fund closings, and down rounds, things aren’t all that peachy in San Francisco for the first time in a long time, and despite being a Berkeley native, I’m rooting for Houston now that I’m a transplant.

Let’s start by looking at some stats.

While we’re not No. 1 in all areas, I believe we have the building blocks to be a major player in startups, and in tech (and not just energy and space tech). How? If the best predictor of future success is history, why not use the template of the GOAT of all startup cities: San Francisco and YCombinator. Sorry fellow founders – you’ve heard me talk about this repeatedly.

YCombinator is considered the GOAT of Startup Accelerators/Incubators based on:

  1. The Startup success rate: I’ve heard it’s as high as 75 percent (vs. the national average of 5 to 10 percent) Arc Search says 50 percent of YC Co’s fail within 12 years – not shabby.
  2. Their startup-to-unicorn ratio: 5 to 7 percent of YC startups become unicorns depending on the source — according to an Arc Search search (if you haven’t tried Arc Search do – super cool).
  3. Their network.

YC also parlayed that success into a "YC Startup School" offering:

  1. Free weekly lessons by YC partners — sometimes featuring unicorn alumni
  2. A document and video Library (YC SAFE, etc)
  3. Startup perks for students (AWS cloud credits, etc.)
  4. YC co-founder matching to help founders meet co-founders

Finally, there’s the over $80 billion in returns, according to Arc search, they’ve generated since their 2005 inception with a total of 4,000 companies in their portfolio at over $600 billion in value. So GOAT? Well just for perspective there were a jaw-dropping 18,000 startups in startup school the year I participated – so GOAT indeed.

So how do they do it? Based on anecdotal evidence, their winning formula is said to be the following well-oiled process:

  1. Bring over 282 startups (the number in last cohort) to San Francisco for 90 days to prototype, refine the product, and land on the go-to-market strategy. This includes a pre-seed YC SAFE investment of a phased $500,000 commitment for a fixed min 7 percent of equity, plus more equity at the next round’s valuation, according to YC.
  2. Over 50 percent of the latest cohort were idea stage and heavily AI focused.
  3. Traction day: inter-portfolio traction the company. YC has over 4,000 portfolio companies who can and do sign up for each other’s companies products because “they’re told to."
  4. Get beta testers and test from YC portfolio companies and YC network.
  5. If they see the traction scales to a massively scalable business, they lead the seed round and get this: schedule and attend the VC meetings with the founders.
  6. They create a "fear of missing out" mentality on Sand Hill Road as they casually mention who they’re meeting with next.
  7. They block competitors in the sector by getting the top VC’s to co-invest with then in the seed so competitors are locked out of the A list VC funding market, who then are up against the most well-funded and buzzed about players in the space.

If what I've seen is true, within a six-month period a startup idea is prototyped, tested, pivoted, launched, tractioned, seeded, and juiced for scale with people who can ‘make’ the company all in their corner, if not already on their board.

So how on earth can Houston best this?

  1. We have a massive amount of businesses — around 200,000 — and people — an estimated 7.3 million and growing.
  2. We have capital in search of an identity beyond oil.
  3. Our Fortune 500 companies that are hiring consultants for things that startups here that can do for free, quicker, and for a fraction of the extended cost.
  4. We have a growing base of tech talent for potential machine learning and artificial intelligence talent
  5. A sudden shot at the increasingly laid off big tech engineers.
  6. We have more accelerators and incubators.

What do we need to pull it off?

  1. An organized well-oiled YC-like process
  2. An inter-Houston traction process
  3. An "Adopt a Startup" program where local companies are willing to beta test and iterate with emerging startup products
  4. We have more accelerators but the cohorts are small — average five to 10 per cohort.
  5. Strategic pre-seed funding, possibly with corporate partners (who can make the company by being a client) and who de-risk the investment.
  6. Companies here to use Houston startup’s products first when they’re launched.
  7. A forum to match companies’ projects or labs groups etc., to startups who can solve them.
  8. A process in place to pull all these pieces together in an organized, structured sequence.

There is one thing missing in the list: there has to be an entity or a person who wants to make this happen. Someone who sees all the pieces, and has the desire, energy and clout to make it happen; and we all know this is the hardest part. And so for now, our hopes of besting YC may be up in the air as well.

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Jo Clark is the founder of Circle.ooo, a Houston-based tech startup that's streamlining events management.