Baseline Numbers For Start-up Companies

Chapter 6: Describe Your Company - Page 6.6

Baseline Numbers For Start-up Companies

While we're focusing on the company description, let's establish some starting numbers that form the basis of your cash flow and balance sheet in the following sections. For new companies, your plan determines the starting balances for the future.

Start-up Costs for Start-up Companies

The start-up company should include a Start-up table instead of the Past Performance table. This illustration is a simple example.

Start-up Expenses

The first portion of the sample start-up table estimates start-up expenses. Make sure, first of all, that you understand expenses, which are different from assets. You can check with the glossary for a detailed definition of expenses, but basically your start-up expenses are only those expenses incurred before the start of the plan. If they come after the start of the plan, they belong in the profit and loss table in the appropriate month. In the example, the total for start-up expenses is $18,350.

Don't confuse expenses and assets. Assets are goods and documents that have transferable value. Assets make the company's balance sheet look better. However, given a choice, most companies prefer to deduct their purchases as expenses rather than store them up as assets. For example, in the United States a computer purchase can be treated either as an asset or as an expense, depending on conditions set forth in federal tax law. When you can choose, you normally want to expense your purchases because then you can deduct those expenses from income. This is why we have "Expensed Computer Equipment," a piece of expensed equipment, among the expenses in our example.

Start-up Requirements Table

Use the start-up requirements worksheet to plan your initial financing.

The table shows some common types of start-up expenses, such as legal costs, stationery, and brochures. One category that frequently generates questions is office equipment, such as computers and telephones, that the tax authorities allow a business to report as expenses. While these purchases might normally be assets, they are more often expensed for start-ups because that reduces taxable income, and the U.S. government allows using them as expenses instead of assets.

Product development expenses cause some confusion because some people want to make them assets, but they are almost always expenses. The trouble is that although you'd like to think of product expense as developing future assets, that's not the normal tax treatment.

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