Unit F: Finance

Start-up Costs and Operating Expenses

It is important to consider the start-up costs of a business. These include machinery or tools, rent or purchase of property, renovations, initial inventory, etc. Start-up costs are in addition to the regular operating expenses that occur once the business has started.

Sometimes the start-up costs can be so high that operating the business is not feasible without further financing or saving.

Example 2

Aaron has a backhoe for his business, but he does not have a trailer or truck to transport the backhoe to his various clients. He has found a used truck and trailer for $10 000.00.

Aaron has also found some land to rent close to the highway. It has a shop to store his backhoe and tools as well as an older mobile home. Rental of this acreage is $900.00 per month, utilities are $200.00 per month, and an initial damage deposit of $900.00 is required.

To fuel his truck and backhoe, Aaron needs to purchase a used fuel tank for $100.00. Filling the tank with diesel will cost approximately $2 000.00.

To organize his bookkeeping for the business, Aaron wants to purchase a computer and accounting software. These will cost $700.00.

Determine Aaron's start-up costs for his business.

Solution

Aaron's start-up costs
Expense	Cost
truck and trailer	$10 000.00
damage deposit on acreage	$900.00
fuel tank	$100.00
fuel	$2 000.00
computer and software	$700.00
Total	$13 700.00

The start-up costs include the truck and trailer, damage deposit on acreage, fuel tank, fuel, computer, and software. Rental costs and utilities are operational expenses and are not start-up costs.

\begin{array}{rcl} start - up costs & = & truck and trailer + damage deposit on acreage + fuel tank + fuel + computer and software \\ = & $ 10 000.00 + $ 900.00 + $ 100.00 + $ 2 000.00 + $ 700.00 \\ = & $ 13 700.00 \end{array}

Aaron's start-up costs are $13 700.00.