What counts as a startup cost?

[ash]

Hi, I am opening a livery yard. In Feb we bought a house with land and have been buying equipment and things that we need such as a tractor, fencing, tools, etc in order to get the business started. We have now reached the point where we need some additional finance so I am writing a business plan. Does the stuff that we've already bought count as startup expenses or should they be listed as assets? We have invested about £30k (excluding the purchase of te house) into the business so far but now are running short of cash. If the bank ask what cash we can put into the business the answer will be very little as we have already put so much in but will they see it like that? This is the first business that we have set up so any advise would be welcome. Many thanks Ash.

[peterjhale]

Hi Ash and welcome to the forum.

First off - premises. If the business owns this then list it as an asset. Remember though that the business will also have any loan on this AND pay tax on any profits you make when you sell. If this is your principle residence it's probably better to keep it in your name (but better off speaking with your accountant)

Next - yes, prepare your finances from Feb so you can show your bank what you have achieved so far and how it was financed.

Don't get too worried about startup costs verus running costs. Although it is better to split them out in any case.

Start up costs are usually costs that get you to a position to make your first sale - so costs, excluding the premises, would be start up costs before you make a sale, eg:

- buying stock
- training staff
- vehicle purchase
- computers
- stationery

Any costs associated with preparing the premises would not usually be associated with your business if the company do not own them.

Assets are those items you buy that have a useful life of over one year. Anything that is obsolute within 12 months is an expense and can be added to the P&L in the year that the purchase was made.

Trust this helps - any other questions please ask

[inbakumar]

Hi Ash welcome to the forum.

Hmmmn. You give me the impression of a person who has embarked on a project without thinking through the issues clearly. After spending £30k and running out of money, you have decided to borrow the remainder of the start-up costs from a bank and therefore have decided to write a business plan .

I wish you wrote the business plan first, talked to your bank and then started spending money on buying a tractor etc. This way you could have preserved some of the cash you have spent already. For example, you could have leased the tractor instead of buying it. This way, the money spent on buying the tractor could have been diverted to procure other items necessary for the start-up of the operations. Anyway, your investment tells me that you are serious about the venture and hope your bank manager sees it that way. If you write the business plan carefully and present in such a way then the bank manager will understand it. Your investment todate should count as your deposit.

Anyway, your plan should include how much money you need to start-up the operation and how you will repay the loan. Since you have already demonstrated a lack of control over money matters (my apologies for being blunt), appointing an external accountant to advice you as part of the future plan will give your bank manager more comfort.

Also it is worth considering a sale and leaseback of the tractor to raise some cash in the event the bank says no. Please let me know if you need any further help on this. You may also be able to lease some of the other assets that are required to start-up the operation.

As for start-up costs, I will list the tractor as a fixed asset.

Good luck and best wishes with your venture.

Regards

[peterjhale]

I wish people would write a business plan first as well

Many people see it as a luxury and a pain - because it's all in their heads and they "know their business"

A plan is just that though - it shows you how to get to your final point.

Look out for a survey I'm going to send out in the next couple of weeks about this - hmmmmmmm