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Start Up Expenses and

Capitalization
The Company will have many expenses even before we get to operate our business.
Its important to estimate these expenses accurately and then to plan where we will
get sufficient capital.
What does it cost to start a business?

Expenses before the starting date such as legal, design etc.


Cash In Hand: Enough money in the bank (an asset) to support the
company during the early months before sales reach break-even levels.
Others such as inventory, furniture, buildings, and equipments.

Expenses before startup:


Most businesses have some expenses before they ever open. Legal expenses (for
example, such as setting up business name and logo), website costs, infrastructure
requirements etc. Most businesses need money in reserve when they start. Sales
takes time to grow but the business is spending on payroll, rent and other fixed
costs from the very beginning.
1. RESEARCH AND DEVELOPMENT: We would start a business after thorough
research about the industry and our competitors. Only after careful feasibility
study will we decide on how to go about our business. We would need to hire
any market research firm for helping us with the research process. Their fees
will be added to the R&D costs.
2. LEGAL: Copyright of Name, Logo, Registration and necessary documentation.
3. INSURANCE: Insurance of the company in case of any emergency and also
medical insurance for each employee.
4. OFFICE RENT: We would start our business by renting a suitable place at a
good location. This would be our office and we would be paying the landlord
security money, rent and also maintenance expenses.
5. OFFICE EQUIPMENT AND SUPPLIES: Desktops, Telephones, Office
stationery, etc.
6. TECHNOLOGICAL: Such expenses include the fees for building and running
a website, buying and installing software, etc. We are self-sufficient for
creating a website and we would create one ourselves. Also our friend from
an IT department has agreed to set up other necessities for the website like
SEO etc. at a discounted rate. Other expenses here would include domain
name acquisition and publishing the website.
7. MARKETING AND PROMOTION: This includes costs for printing banners,
visiting cards, brochures, advertisements on paper and various websites, etc.
8. EMPLOYEES: Costs like salary of the employees, bonus or incentives, paid
leaves, etc. are included here.
9. OVERHEADS: Any small unattended expenses would be covered under this
category

Total expenses: INR 2,20,000

Opening a new business has a way of costing more than anticipated even after
having done the best research. Therefore, an approach to resolve this is to add a
separate line item, called contingencies, to account for the unforeseeable. A rule of
thumb is that contingencies should equal at least 20 percent of the total of all other
start up expenses.
Hence contingency amount = 20% of Startup Expenses
= 0.20 x 2,12,000
= INR 42,400

Hence, Total Startup expenses = INR (2,12,000 + 42,000)


= INR 2,54,400