Anyone planning a new business is rightly focused on identifying a market need and understanding what it will take to fill that need. Startups also need a clear picture of expenses before the doors are opened.
With a grasp on initial expenses, the new business owner can manage the worries that come with stepping into unknown territory while assuring investors.
Starting with a big picture of important investments, owners can break out specific items that can turn estimates into expectations.
The Small Business Administration offers a break out of some likely startup expenses and adds that each company will have other expenses that are unique to that business.
Some of the hard expenses that a startup can expect include office space, equipment and supplies, inventory, utilities, and licenses and permits.
Soft expenses include insurance, legal and accounting services, salaries, advertising and marketing, printed materials and an online presence.
To the Penny
Many expenses can be calculated down to the penny. The cost of permits, office space and equipment, for example, are published and easily obtained.
Other costs, such as payroll, market research and web development will have to be estimated.
One and Done
As a picture develops of startup expenses, organizing them as one-time or recurring charges provides a window into what it will take to reach profitability and when.
One-time expenses such as office equipment purchases, business identity graphics, and operating permits are typically deductible at tax time.
Five Year Forecast
Ongoing expenses like salaries, rent and utilities should be calculated out for at least the first year of operation. Forecasting monthly expenses out to the first five years demonstrates good planning to investors or lenders.
A formal report showing projected expenses and anticipated revenues based on market research helps potential financial supporters establish the value of their investment.