Setting up a startup: What are the startup costs for a tech company?

Source: Business Appraisal Florida

Setting up a business requires effective strategies and organization. A majority of the entrepreneurs have an early-development plan in place, to strictly adhere to their monthly or annual budgets. This is a mission-critical aspect for the success of any organization, many startups, however, find it difficult to adhere to a stringent budget.

Handling business expenses efficiently empowers any small business significantly and paves the path for continued success. In layman’s terms, maintaining an effective long and short-range plan to manage startup expenses can enable an entrepreneur to seamlessly control the cash flow.

Starting a business is always an exciting process for any entrepreneur. However, this process requires money to be viable, at a time when there is very little inflow of cash. Hence, it is important to be realistic while planning your business startup costs. Various aspects add to the business startup costs including organizational costs, business credit cards, legal fees, office space, and employee training.

If you are planning about setting up a business, often you might find yourself stuck in the budgeting process of it. By the end of this article, you will have a fair idea regarding the major business expenses. Here is a way, in which you can figure out your startup expenses:

The very first thing you have to concern yourself with while planning your organizational costs is to have a few realistic assumptions about your startup. You can initiate the process by posing yourself with the following questions:

• How many customers does your startup aim to get on board?
• How much is your product going to cost you?
• How much revenue will your startup generate in the first year?

By employing these benchmarks, you can easily assess your cash flow for each year. Plan accordingly for all of the following months and create a specific budget. Your sales figures will play a huge part in your profit margins, and will in turn assist in determining your future operating costs. A strong plan, backed by strong sales figures, will assist you to cover any additional business expenses, easily.

While starting a business, you will have high expectations. However, it is advised by experts to be realistic and blind optimism might cause you to lose a lot of money in a short span. In the initial phase of your business, it would be beneficial to you if you keep an open mind, and make changes for any issues along the way.

We have compiled a few major startup expenses, which can assist you in framing up a detailed budgeting plan. So, without further delay, let us dive in and get to know the most important business startup costs.

Equipment

Equipment costs can at times be a major startup expense, depending on the nature of your business. While setting up a business you also need to factor in expenses such as servers, computers, infrastructure, and other miscellaneous equipment. Once you have arrived at a number, you have to multiply this number with the total number of employees in your company; the resultant number can seem very costly. Fortunately, to reduce the upfront cost of equipment, there are several lease opportunities available. Additionally, while starting a business, entrepreneurs can opt to use refurbished equipment via online auctions or resale stores, to further reduce their organizational costs.

A startup must gather tools that can make it highly productive, and help be a notch above its competition. Perks such as ample memory storage, fast processors, and power backup become a necessity when sustaining the workflow, which requires long working hours and numerous meetings to be attended. You can choose to opt for refurbished IT systems, which can reduce your overall equipment cost by over 80%, and at the same time help you gain access to the latest, top of the range technical equipment.

Human Resources

The major expenses under this category include employee training, benefits, payroll, and recruitment. All these aspects combined can amount to a huge sum in the monthly budget for your startup. A quarter of your budget has to be allocated to your human resources function, to ensure the inflow of talent, keep the employee morale up, issue business credit cards, conduct employee training, and achieve smooth functioning of your organization. Hence, the human resources function must be allocated an adequate amount of funds, for sustained long-term success.

Although as the head of your startup you will be able to take the final judgment on a certain candidate sourced by your in-house team or an agency; this process of sourcing should be managed by agencies in the recruitment field or your in-house team. Experts often advise that outsourcing should be carried out to reduce your operational expenses, get amazing talent on board, and if you have a trustworthy relationship with a third-party agency.

Legal

Legal fees are often overlooked while entrepreneurs are setting up a business. Legal fees amount to a significant chunk of the startup budget, and you should pay heed to this important aspect while framing up a budget plan for your organization. Some of the early-stage legal fees to be considered include the following:

• Retainer Fees
• Statutory Fees
• Referral Fees
• Contingency Fees
• Attorney Fees
• Incorporation Fees

Paying a lawyer can never be avoided, however, certain hacks might help you in your business journey:

• Outsourced General Counsel: Numerous law firms flexibly offer their services. In such an arrangement, the lawyer assigned to your firm operates on an as-needed basis and part-time. This, in turn, can help you save on your business expenses.
• Alternative Fee Arrangements: A majority of the lawyers charge their services by the hour, however, it is always worth asking, if they have an alternative arrangement for their counsel.
• Minimum Viable Legal Protection: Many a time, instead of heading towards a law firm, you can opt to do a few major tasks yourself, including filling up standard forms, and regular legal procedures, among others.

Marketing

Having a separate advertising or marketing budget is another critical part of the startup ecosystem. Startup entrepreneurs often have to prepare a monetary plan for social media, business credit cards, the creation of blogs, and advertisement, among others. To achieve meaningful momentum and optimize brand recognition, startups need to invest their time, money, and energy in the fundamentals of marketing campaigns.

Social media platforms like Facebook, YouTube, Instagram, and Twitter have toons of videos being posted every day, with their views going above millions. It is evident that you have a free marketplace to advertise your content, however, you need to produce curate content for your target audiences to gain new customers. Yes, you do not have a Hollywood producer to create and share videos, however, you can start by thinking, what content might go well with your target audiences, and how can create a professional video from the corner of your office? This is possible, maybe after a few failed attempts. Moreover, there is plenty of video editing software, free templates, and slideshows on the internet to get you started.

Office Space

Last, but not least: Office Space. Entrepreneurs should allocate a portion of their budget towards gaining access to a decent office space. This can be a tedious task, especially for budding entrepreneurs, since their budgets are highly constrained. However, various alternatives can help you save a lot on your business expenses, such as co-working spaces. This can assist you in reducing your office space expenses by a significant amount, and at the same time learn how other budding startups are functioning and going on about their business.

Conclusion

Even though the costs to set up a business are high, it is highly recommended by experts that entrepreneurs avoid borrowing money as much as possible. This is mainly because borrowing puts early-stage businesses and their owners under a lot of unnecessary pressure, as it leaves little to no room for mistakes. Conduct thorough research of all the funding options available to you. Having detailed information about all aspects will give you an upper hand while setting the budget for your organization. And, if you do have no other option than to opt for borrowing, then work in tandem with your lender to make sure that your startup can deal with the financial commitment. Finally, always remember, when it comes to startups, your assets will also be on the line.