Loading…
Start Up Costs

Common Costs for Starting Up a Small Business

Every start-up business has different requirements and therefore the start-up costs are always going to vary. You might as well ask the question ‘how long is a piece of string?’

The first piece of advice that I would seriously share with you is to find yourself a professional mentor or business adviser. The other thing that I would remind you of is that all fees are negotiable!

Technically, start-up costs are the costs that you will incur before you start earning or making a profit. That main sound pretty obvious, but it is important to make that distinction because it can affect the amount of tax you pay.

Any business-related expenses that you incur such as fees you pay to consultants including a business adviser, accountant or even lawyer as well as anything you spend on market research, training or advertising come be claimed as deductions. That is why it is absolutely essential to find yourself a good accountant or business adviser, because in the long term they will save you money. Writing off expenses and knowing what is or is not allowable is a very technical matter best left to the experts.

Other assets which you buy for your business – for instance, one off costs such as vehicles, office, inventory etc., do not qualify as expenses and therefore cannot be offset against tax.  They are treated slightly differently and can be depreciated out of the business. These items are called your CAPITAL EXPENDITURE.

That takes care of what you’re going to spend but you also need to know how much cash you have available in order to start your business. This is not just cash for buying inventory, but you need to think about expenses such as wages, gas, electricity, leasing costs, fuel costs, rent etc. In other words, you need to know exactly what your ASSETS are.

I’m going to give exactly the same advice as any business adviser or accountant gives to a start-up enterprise and that is to overestimate your expenditure and add something for contingencies. In other words, those surprise expenses that you had not allowed for.

The exercise of looking at your initial capital expenditure and expenses is an important one because you need to be comfortable with them and you also need to ensure that they are going to be fit for purpose as far as your projected income is concerned (which, incidentally, you should underestimate).

You will not be surprised to hear that one of the very common reasons for business failure in year one is a lack of cash, or to put it more accurately, not enough cash to meet those initial expenses.

Needless to say, I have no idea what type of business you are engaged in, but I can say that your start-up costs will depend on which industry sector you are about to take part in. In other words, there is no magic formula which covers every single business start-up.

However, without the time and expense spent on registering a business and all the other statutory requirements, the common expenses that you will incur at the outset are going to range from stock purchases and market research to business advice, lease agreements, Internet and telephone, electricity, marketing, equipment, office furniture and wages.

Apart from going to a professional business adviser, I would suggest that you take the trouble to have a look at existing companies’ accounts in order to see what they are spending money on.

The other aspect of expenses and money for you to consider is to distinguish between one-off costs such as, for instance, a computer and ongoing costs such as rent.

Looking outwards, you should also contact the Australian Business License and Information Service (ABLIS). They are a great resource to any individual or group of individuals who are thinking of starting up a brand-new business with all sorts of support available.

Remember that you are very unlikely to begin selling and generating revenue on day one, and if someone who owes you money does not pay on time it can be very painful for the fledgling business. Therefore, you should time your launch very carefully, but also very realistically because it is very easy to run out of initial seed capital before launch. This is yet another aspect of running a business which you should discuss with a professional business adviser.

Also, you have to remember that when starting a business, you are very likely to have to learn to adapt to a reduced income. Therefore, if you have a family, a mortgage and various other heavy personal expenses, do make sure that you have these covered. Otherwise, be prepared to modify your lifestyle in the short term. There are personal as well as financial costs to consider.

On top of registration and professional fees – specifically, your adviser, accountant and lawyer, there will be statutory business registration fees as well plus (for the modern business): Internet costs, such as domain name, registration, as well as website building. You may find yourself needing public liability insurance, as well as various licences and permits, depending under which jurisdiction you are working.

Your marketing costs, such as your letterhead, any signs or logo are very often forgotten, as are simple things such as the cost of telephone and Internet packages.

You also need to keep an eye on legislation. For instance, the Australian government recently announced in its 2016-2017 budget a small business tax discount for sole traders and various other unincorporated businesses with a turnover of less than $5 million. That tax discount is going to increase over the next 10 years to 16%. That again is the sort of thing that a business expert will know.

The government is a great supporter of small businesses and has also increased the definition of small business by turnover, and that has increased from $2 million to $10 million, effective 1 July 2016.

Another announcement is that the company tax rate will decrease to 25% within 10 years, and in fact within two months, will decrease to 27.5%. (That’s for companies with a turnover of less than $10 million).

There have been various changes to the Goods and Services Tax for the coming year, and even a program for small businesses to hire youth jobseekers on an internship.

I hope you can see from all the above that when starting a business, it is not simply a case of finding some goods to sell and launching.

There are truly many things to think about and hopefully we can develop these themes as time goes by. Rest assured that this website will constantly be updated, informing you of any changes in legislation, so that you can always optimise your income by always being totally up-to-date.

Leave a Reply

Comment moderation is enabled. Your comment may take some time to appear.


JOIN OUR NEWSLETTER
Join over 3.000 visitors who are receiving our newsletter and learn how to optimize your blog for search engines, find free traffic, and monetize your website.

GET USEFUL INSIGHT, ADVICE AND TIPS FOR TAKING THE LEAP TO ENTREPRENEURSHIP.

We hate spam. Your email address will not be sold or shared with anyone else.
No thanks, I am not interested
No thanks. Ask me later please

AN UP-TO-DATE BUSINESS PLAN THAT INCLUDES:

One- and three-year projections
A capital budget

AN ANNUAL MARKETING PLAN THAT INCLUDES:

Precise sales and profit goals and timetables
Strategies and tactics for the next three years
Budgets, Forecasts, and Benchmarks
A tentative sales plan
My marketing plan also includes:
The demographics of my target markets
A thoughtful definition of the markets we serve
A definition of the needs/wants our products and services fill
An analysis of the growth potential of our markets
A competitive analysis
A definition of our "Unique Selling Proposition"
Projections for other products or services that could be developed
Timetables for research and development

MONTHLY BUDGETS AND STATEMENTS THAT INCLUDE:

Thorough and up-to-date records
Cash flow budget
Profit and Loss (Income) Statement
Balance sheet
Deviation analysis
Standard cost comparisons
Cash reconciliation

AN INFORMATION BASE THAT ALLOWS ME TO:

Keep track of new developments in the industry
Obtain and study key trade information
Understand what “state of the art” means in this business
Provide customers with the best available information about our products and services
Keep all our employees adequately informed

I’M CERTAIN THAT THE BUSINESS IS PROPERLY CAPITALIZED BECAUSE I:

Base capitalisation on worst-case planning
Have emergency funds (or access to them)
Have discussed this with my banker

I UNDERSTAND THE VALUE OF THE BUSINESS BECAUSE I’VE MADE USE OF:

Professional appraisers
Present value methods to evaluate terms
Professional tax planning
Accurate, timely financial information

I STRIVE TO IMPROVE PRODUCTION, QUALITY, AND OPERATIONS BY:

Keeping the equipment in top condition
Maintaining safe conditions
Establishing high standards
Standing behind our products and services
Not tolerating shoddy performance
Working for consistency
Using our company’s “look” as a statement to our markets

PERSONNEL DECISIONS ARE BASED ON HUMANE, CAREFULLY CONSIDERED POLICIES THAT INCLUDE:

Checklists to make sure objectives are clear
Communication, to make sure objectives are understood
Written job descriptions
Regular progress and performance evaluations
Fair hiring practices
Fair wage scales

AS FOR MY OWN PERSONAL/MANAGERIAL SKILLS, I WORK HARD TO:

Develop my problem-solving abilities
Always stay calm
Be objective
Avoid investments in my own ego
Listen to my employees
Plan changes in our course to minimize negative effects
Make decisions promptly
Always get the facts behind problems
Accept my own limitations
Delegate tasks that can be done more efficiently by someone else
Analyze all available options
Develop my reading/study habits
Improve my skills
Consider and evaluate risks
Be positive with customers, employees, associates

ESC to exit without sending the form