A start-up cost is an amount required for a business idea to become reality. In simpler terms, it is the money spent in order for any business to start operating, meaning they are expenses that create a business. Start-up costs fall into two distinct and individual sub categories: Pre-start-up costs and post-start-up costs.
What are Pre starts up costs?
Pre start up costs can be defined as the expenses required to create the base for any business. These act as a base layer for the foundation of any business to work and operate, the following list names and explains the importance of common pre start up costs:
- Business Plan: This acts as the base factor for any business to properly function. A successful and well-planned business idea plays a vital role in a successful business itself. A business plan consists of everything required, considered, and decided for the business. This can be permit costs to outsourcing costs, everything should be included in the business plan.
- Research: Marketing research is an important task for any business to do before they start operating, as it gives insight into consumer demands, how saturated a market is, etc.
- Borrowing Costs: These are the costs acquired in order to start a business. All businesses need capital in order to start operating, the most common practice to gain capital is through small business loans from banks. The loans come with interest payments that have to be paid back fully, which is why business loans are categorized as borrowing costs.
- Technological Costs: These include phone lines, websites, information systems and customer services that need to be established at the start of a business. They also include payroll software, benefit granting software as well as promotional software in terms of employees, many small businesses tend to outsource these to other companies in order to save expenses in hiring specific people to plan these. For example, small businesses in larger cities tend to outsource the calculations of their finances before they start business operations, as many accountants in Toronto work as freelancers that calculate business finances.
What are post start up costs?
Post start up costs are expenses that are incurred after all planning and decisions are made on how to start the business, and when the business plan is complete, these costs are made in order to start business operations. The following include common post start up costs:
- Advertisement: Small businesses need to promote and advertise their businesses in order to fall on the customers and consumers radar. Marketing falls under the category of advertisement as well.
- Packaging: The packaging of products (if physical products) is also crucial for small businesses to settle a brand identity.
- Employees: Small businesses tend to hire a specific set of employees rather than a large chunk. These usually include accounting, management and work personnel. For example: Tax Accountants are a vital start up cost as they audit financial aspects of any business when it comes to paying tax and how much should be paid.
- Equipment: Supplies are required for a business to start manufacturing and operating. Equipment can be bought or leased depending on the financial plans drafted.