Startup Capital: One-Time Costs and Ongoing Expenses

SIBP-Blog-NEW-B-3As you raise startup capital, one of the first questions you should ask yourself is “What do I need this money for?” It can be a tricky question to answer, as there are a lot of expenses associated with starting a business. To understand how much money you need, you need to start with your expenses.

While every startup is different, most early stage businesses share similar needs. These generally break down into two broad categories: One-time costs and ongoing expenses. In this post, I’ll explain the differences between these two kinds of expenses, and give you some general examples of each.

One-Time Costs: One-time costs can take many forms, and the specifics will vary depending on the nature of the business. From a financial perspective, however, they all work more-or-less the same way. These are up-front investments in your startup, but you only have to pay for them once.

There are six general categories of one-time costs:

  1. Formation expenses: These are legal and organizational costs of putting together the business. Filing fees for incorporation are a good example of this, as are state or national licenses for certain kinds of business. There will also be legal expenses for the agreements between founders and major founding partners, all of which should be hammered out during the formation.
  2. Identity development: Every business needs a logo. Your identity development is how your business looks and feels to the world. These expenses include things like website design, logo design, business cards, hiring someone to manage your social media, signage, trade show branding, and even things like uniforms.
  3. Facilities and Equipment: Unless you have a strictly virtual, online-only company, you’re going to need a place to do business. This means finding a building, or possibly multiple facilities, depending on the nature of the business. One-time costs here could mean deposits, remodels or upgrades. If you’re buying the building, that’s another set of costs. All of your utilities will also have deposits or set-up fees. You’re also going to need things to go into the building, from desks and chairs to specialized machines and delivery vehicles.
  4. Computers and communication: Doing business today means having access to modern business technology. This means having decent computers, phones and printers for employees to use, and it often means having tools like dedicated servers, projectors, and even tablets for sales calls. There’s also software, from industry specific tools to more common programs for things like payroll and accounting. Retailers will need point of sale (POS) equipment or software, including the ability to take credit cards.
  5. Initial inventory: If you’re manufacturing or producing something, you’re going to need raw materials to produce it. You might also need thing like molds for injection molding, which tend to be very expensive on the front end. You will also need packaging, whether it’s simply to ship bulk goods or something more visually attractive for retail use.
  6. Product and service development: These are all the one-time costs associated with getting your products or services ready to hit the market. Those costs can be everything from design and engineering to prototyping and coding. Intellectual property requirements, like trademarks and patents, also fall into this category.

Ongoing Expenses: Ongoing expenses are simply the costs of running your business. They can also be deceptive, as some of the smaller expenses can be easy to forget about or overlook. Added together as a monthly expense, and even those seemingly negligible expenses can make a huge dent on your profits.

  • Rent or mortgage: As well as any other facilities costs.
  • Payroll: Both for employees and contractors.
  • Taxes: Income tax, as well as use and sales tax.
  • Insurance: General liability, as well as workman’s comp, auto insurance, errors and omissions (E&O)
  • Professional fees: Lawyer and CPA fees are common examples.
  • Marketing & Advertising: From AdWords and display ads to things like social media expenses.
  • Sales Expenses: Everything from travel reimbursements to brochures.
  • Loan Payments: Usually bank loans, but includes private loans as well.
  • Utilities: Internet, electricity, heat, and water & sewage
  • Office Supplies: From copier toner to paper clips.
  • Owner’s Salary: This is a big one, because the owner needs to make money as well. It’s often handled separately from payroll.

By breaking down your business expenses using these categories, it should be much easier to create a clear picture of your startup capital needs. In another post, I’ll explain how to put this information to work as you raise cash to launch or expand your business.