It is essential that you itemize each and every expense to the penny.

The devil, they say, is in the details.

Before you start a new business, it is imperative that you clearly identify all your start-up costs. You need to know “before” you open exactly what it will cost you to do so. This is important, because once you have identified your start-up costs, you will see what money you have and what money you need to secure from an outside source.

  • If your start-up costs are $250,000 and you have $50,000 then the balance or $200,000 is what you are looking for from a lender or investor.

So, what qualifies as a start-up cost?

Let’s start with the basics, and this means understanding how start-up costs are categorized. All start-up costs – the period before you start generating income – include two kinds of spending: assets and expenses.

  1. Assets are one-time costs and include such things as Capital Improvements, Furniture and Fixtures, Equipment, Inventory and the like.
  2. Expenses are the costs for operations that occur during the start-up phase, although they will continue throughout the life of the business and include things such as rent, utilities, marketing, training, payroll etc.

Part of your start-up costs should include investing in professional fees for such things as:

  • Setting up your accounting system,
  • Registering your company as a sole proprietorship, partnership or corporation
  • Paying for a business plan.
  • Paying for a business advisor

Other potential start-up costs include:

  • Pre-opening advertising and promotional activities
  • Fees for setting up your commercial bank account and debit machine
  • Capital Improvements
  • The first and last month’s rent
  • Equipment purchases
  • Supplies of paper, soap etc.
  • Fees for setting up your telecommunications
  • Deposits for gas, water, and hydro
  • A POS system
  • Licenses
  • A security system
  • Designing your Website and Social Media pages
  • Signs inside and outside your business

It is essential that you itemize each and every expense to the penny.  You are going to have to go to a lender and/or investor and it is important that you ask for the exact money you need. It is almost impossible to go back at a later date and ask for more. A lender is only going to forward money upon presentation of an invoice; so, make sure you project what they will be.

If you are short in cash before you open because you didn’t ask for enough money, then, you are going to have to ask your new business to fund the overages and that isn’t fair. Your forecast will show that even if you are an excellent operator, being profitable in the early going is tough.  Therefore, expecting the business to pay off start-up costs that you didn’t expect is not reasonable; as it will be struggling to establish itself as a business.

So, understanding the facts, here are the steps:

  1. Itemize ALL your start-up costs
  2. Single out your contribution
  3. Summarize what money you require from your lender/investor

Paul Morgan, Plan2Profit, 1-844-752-6776

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