Startup Expenses and Capitalization
Starting a
business always requires a variety of expenses to
get the business of the ground. You need to
carefully estimate these expenses and then to
indicate where you will get sufficient capital to
finance. This is part of the research phase and your
research efforts must be thorough. If your research
is complete, there is less chance that you may
inadvertently leave out important expenses or
underestimate them.
Careful planning
and research can’t always anticipate the costs of
starting a business. However, you can make
allowances for unexpected expenses. One approach is
to “pad” each item in the budget. If you use this
approach, however, it destroys the accuracy of your
plan. The other option is to add a separate line
item, called contingencies. This line accounts for
the unforeseeable. The second option is a better
approach.
Talk to others
business owners with similar businesses. You can ask
them what to expect in terms of contingencies. If
you cannot find a business owner that is willing to
share information, another recommendation is to add
20 percent of the total budget to account for any
contingencies.
Your business
plan should include an explanation of your research
and how you gathered your forecasts of expenses.
Give sources, amounts, and any terms of proposed
loans. Include detailed explanations of how much
each investor will contribute what percentage of
ownership each will have.
Back to more Business
Plan for a Startup Business
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