What are the specific costs to get started?
Discussions About the Costs For A Start-Up
Many entrepreneurs tend to underestimate both the costs and time that it takes to launch and later manage an early stage business. For the first-time entrepreneurs, especially, there are major challenges, such as having to think in advance and how to plan for expenses. This Article about budgeting will help you to accurately estimate the cash required for starting up your venture so that you will avoid the pitfall of underestimating both the money and time it takes to start your venture.
First, circle back to the discussion in a previous Article about founders’ contributions. Such contributions vary in nature, extent, and time. In exchange for this equity capital contributed, the founders are issued securities of equal value from the corporation. It is easiest to discuss and value cash, as long as U.S. dollars are used. Other contributions might also have value, but it is up to the founders to agree on how to assign that value. These include: tangible property, intellectual property, business plan preparation, commitment and risk, business knowledge and domain expertise, responsibilities for day-to-day managing, and specific contacts like bringing connections to other executives, marquee customers, technology partners, and potential investors.
Keeping in mind that your first product is like a one-time project, you must do the following tasks. First, record this equity capital, then determine the minimum amount of working capital required to gather and control the specific labor, direct materials, subcontractors, facilities, and equipment. Next you need to determine what engineering resources are needed to get the product developed and start some revenue coming in. There are specific critical capital resources for launching your venture and getting your first product developed or service launched. The discussion below lists the most common start-up costs you may need to consider.
Start-Up Specific Costs
Includes development and ramp-up costs, inventory and supplies, direct labor and consultants’ fees, subcontracting and outsourcing, machinery, tools, printing of technical or special product-related literature, and measurement and testing instruments. It is important to also understand the payment terms and timing and forecast accordingly.
Includes plant equipment and installation costs, improvements in office location or business space, deposits for utility companies, special fees for licenses, special real estate and other consulting fees, and logistical, storing, shipping and packaging needs for the product.
Includes business plan development costs, business and legal fees, banking fees like check printing and opening a checking account, incorporation expenses, and tax registrations or deposits.
Includes marketing studies, special promotional and advertising needs like advertisements in phone books and upcoming print publications announcing the new product or launching of the venture, product-specific marketing information or sales-related data, and special packaging needs.
In addition to the contribution of cash, this includes completion of specific venture and product-related tasks. The assignment and timing of these tasks is based on the availability and existing agreements or understanding among the founders and venture team. Also included are expenses for raising money. Entrepreneurs should budget as much as 15% of the money they are seeking for additional expenses.