Start Up Assets for a Business
Start up assets are part of start-up costs. They are the amounts which you need to spend on assets such as land, buildings, equipment, and plant and machinery, and inventory to get the new business up and running, ready to start producing and selling goods and services.
What you define as start up assets is completely a matter of opinion. Normally for example a business might need to purchase office furniture, computers, plant and machinery to start the business. Subsequently the business is operating and trading, and further expenditure on assets is not defined as part of startup assets.
For example, a business opening a coffee shop might need to refurbish the premises to make it suitable as a coffee shop. Additionally the business will then need to purchase tables, chairs and coffee making equipment before it opens for trade. These items would be classified as start up assets, and help determine the amount of funding required to get the business off the ground. At a later stage, after opening, the business might decide it needs additional equipment and furniture, but these are not classified as startup assets.
The point of estimating start up assets is not to categorize costs, but to get an idea of what financial capital your business is likely to need before actually starting to trade. Having a strong foundation of assets is crucial for a start-up’s success, as it provides the necessary resources to get the business up and running, and to support its growth over time.
Start Up Assets in the Financial Projection
Having estimated business startup assets, they need to be included in the financial projections template. Whether the startup assets occur before or after the financial projection start date determines their method of inclusion.
We suggest that you estimate the business start-up assets and include them in the start up costs calculator under the heading of assets. This start up assets template also deals with start up expenses and funding. Additionally it provides an opening balance sheet for inclusion in the financial projections template.
When you purchase the startup assets before the start of the plan, they become the opening assets of the business. You should include them in the opening balance sheet under the proper category, such as fixed assets, cash, or inventory.
There is however, nothing to stop a business starting the financial projection on day one before incurring any startup costs. In this case the plan has a zero opening balance sheet. All the ‘startup assets’ will be under the appropriate headings in the balance sheet for year one.
Startup assets forecasting is an art not a science. No one expects you to be able to predict the future. You are making educated guesses based on available information. The goal is to provide a realistic estimate of what you think the assets to fund will be. Avoid wishful thinking, (add 10-20% to the figure you first thought of). Additionally avoid too much detail in analyzing the types of assets you might have.
Remember, the main aim of this task is to estimate the total start-up costs needed to get the business of the ground and to make sure you have the required funding to pay for them before you start. Whether the startup assets appear in the financial projection’s opening balance sheet or the year one balance sheet is a secondary concern.
What’s the Next Step?
The next step in producing financials for your business plan is to find the available startup capital needed to help fund the startup costs.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.