What is the difference between startup and running costs

Business coaching expert in london. Start-Up costs are the things you are going to need to get the business giong i. These are mainly one off payments that do not come again. Running Costs are the day to day costs of running the business usually calculated in terms of monthly or annual costs.

These costs will be for things like power, staffing, materials etc. Fixed and Variable Costs Fixed costs are ones that do not vary with sales. Your operating budget will also include sales projections. Consider expanding and contracting your expenses based on your sales projections. Efficient operating budgets will forecast expenses for six to 24 months, depending on your industry.

You should set up separate operating budgets, one based on profitability and the other on cash flow. Your profitability operating budget will include all expenses and projected earnings within a month period. Your cash flow operating budget includes when you can expect to receive payments from your customers. This is critical because many businesses may not collect payment for 30 to 90 days.

Marty Aquino is a venture capitalist who has helped start-up companies raise millions of dollars. He has been a passionate writer on green energy, technology and entrepreneurial topics since By separating them in this way you can give yourself a more accurate estimate of what it will take to launch your business.

Here are some common expenses to consider in both categories:. Some will remain fixed, others will operate as variable costs and some may shift between the two over time.

These are costs associated with long-term assets purchased in order to start your business. Expenses are deductible against income, so they reduce taxable income. Assets, on the other hand, are not deductible against income. By initially separating the two, you potentially save yourself money on taxes.

Additionally, by accurately accounting for expenses, you can avoid overstating your assets on the balance sheet. While typically having more assets is a better look, having assets that are useless or unfounded only bloats your books and potentially makes them inaccurate. Listing these out separately is good practice when starting a business and leads into the final piece to consider when determining startup costs. Cash requirements are an estimate of how much money your startup company needs to have in its checking account when it starts.

In general, your cash balance on the starting date is the money you raised as investments or loans minus the cash you spend on expenses and assets. As you build your plan, watch your cash flow projections. If your cash balance drops below zero then you need to increase your financing or reduce expenses. While that makes good sense when you can do it, it is difficult to explain that to investors. And it interferes with your estimates and dilutes their value.

There are two potential methods you can use to develop these estimates. The more traditional, which I call the worksheet method, involves creating separate worksheets for starting costs and starting financing.

The more innovative, which we use in our LivePlan software, simplifies this with rolling estimates for expenses, assets purchase, and financing to manage cash flow as a continuous process. The traditional method uses a startup worksheet, as shown in the illustration here below, to plan your initial financing.

The example here is for a retail bicycle shop. It includes lists of startup expenses in the upper left, startup assets in the lower left, and startup funding on the right. Notice the balance here. One side shows the startup costs and the other shows where the money will come from.

Remember, the worksheet is covering what happens before launch. That is your initial loss when starting, meaning that these expenses can be deducted against income later, for tax purposes. LivePlan suggests a different and probably more intuitive way to estimate startup costs. The key difference between LivePlan and traditional methods is the estimates start when a business starts spending rather than when it launches and starts getting revenues. There is no division between the launch date and pre-launch spending.

So there is no specific startup table. For example, in the Soup There It Is sample business plan, the revenue starts in April—but the spending starts in January. For a look at how these same numbers would show up in the traditional method, read on to the following section. And how do you estimate, with the LivePlan method?