Manufacturing Startup Costs: Budget for Tests and Success
I’m one of those people that is very meticulous with my budget. I try to account for all my spending each month, and it has paid off so far. But budgeting for your hardware startup is a different beast. Any number of things can go wrong as you embark on the journey towards profitability. Planning ahead helps you maximize your chance of success.
Anyone interested in giving your new startup company investment funding will want to be assured that your company can survive long enough to bring your unique ideas to market. You need to ensure your investors that you have a plan in place to see your ideas through to market and, hopefully, become profitable. This means you will need to carefully budget your spending on designs, testing, redesigns, and your first manufacturing run.
Forecasting Your Startup Cash Flow
Startup companies do not have the financial flexibility available to entrenched companies. The risk that the company fails is real and probably no one will give you the credit you need to move your product to market. Arguably, the most important budget and forecasting consideration is your future cash flow.
In order to move from concept to market, you will have to design, order, and test your prototypes before you can move to full-scale manufacturing. After the alpha and beta testing phases, your product may require redesigns. The manufacturing startup cost is real, and cash is going to pay for purchasing and testing those prototypes long before you see revenue or profit from customers.
Cash flow is king
The challenge for your company is that you need to know when you’re going to run out of cash. What’s more important is that your investors want to know when you’re going to run out of cash. Your investors want to know that you can manage their investment wisely and that your company will be able to survive long enough to bring your ideas to market.
Most early investors ignore financial projections for early-stage software companies. But with hardware, greater initial investment tend to be required. There are more things to be paid for early on including salaries, manufacturing, warehousing, shipping, rent, legal costs, and marketing.
Don’t Let Your Product Fall to Overconfidence
Incorporating the worst-case scenarios into your budget requires significant forethought and experience. Your pitch to investors should include every phase that requires financing and even plans for contingencies in case something goes wrong. Investors don’t just want to see that you have planned for success, they also want to see that you have planned for Murphy’s Law.
Don’t just plan for a redesign, plan for multiple redesigns and testing phases. After alpha testing, you may find unanticipated problems with your product that must be fixed before manufacturing for beta testing. This takes time and causes delays in your schedule. It also incurs extra costs, as you will have to pay your engineers to find the source of the problems and you will have to pay your designers to fix any problems in your layout.
Think about the time and money needed for product redesigns and incorporate this into your budgets. Potential investors will appreciate that you have thought through this possibility before asking them for money. Thoughtful investors want your company to get the product perfect, even if it means overfunding the project.
Collaborate With Your Manufacturer to Identify Realistic Startup Costs
Thanks to globalization, hardware startups have more access to manufacturers than ever before. No longer are your electronics manufacturing options confined to China. This flexibility and market competition allows you to find a manufacturer that is willing to work within your financial constraints while meeting your functional requirements.
Startup companies often forget that it can be difficult to mass manufacture products in a timely manner. While manufacturing capabilities and efficiency have improved, design and rapid prototyping have become much easier and cheaper. It is easy to make one of something, but it is difficult to scale this to thousands of identical widgets.
Work with your PCB manufacturer
Chances are, the manufacturer you choose really wants your business. Think of your manufacturer as a partner in your venture. Working with your manufacturer to project costs, understand processing capabilities, and run times gives you the ability to forecast your spending budget accordingly. Consulting with your manufacturer will give you a better idea of run and delivery times and will help you budget your time and money accordingly.
Altium Designer is a great piece of PCB layout software that can help you move through each testing stage and, eventually, to manufacturing. The ActiveBOM tool quickly generates your bill of materials and helps you source your components while staying within your budget.