Start Up Assets for a Business
Start up assets are part of start-up costs and are the amounts which you need to spend on long term 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 get the business started. At some point, the business is operating and trading, and further expenditure on long term 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, it 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.
Start Up Assets in the Financial Projection
Having estimated business start up assets, they need to be included in the financial projections template. How they are included depends on whether they occur before or after the date the financial projection is started.
We usually recommend business startup assets are estimated and included in the start up costs calculator under the heading of assets. This start up assets template also deals with start up expenses and funding, and provides an opening balance sheet for inclusion in the financial projections template.
Having been purchased before the start of the plan the start up assets included here will form the opening assets of the business, and be included in the opening balance sheet under the appropriate category, fixed assets, cash or inventory.
There is however, nothing to stop a business starting the financial projection on day one before incurring any start-up costs, with a zero opening balance sheet and including all the startup business assets under the appropriate headings in the balance sheet for year one.
Start up 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 the information you have available to give a realistic estimate of what you think the start up assets to fund will be. Avoid wishful thinking, (add 10-20% to the figure you first thought of), and avoid too much detail in analyzing the types of start up 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 they are included in the financial projection as part of the opening balance sheet or as part of the year one balance sheet is a secondary issue.
What’s the Next Step?
The next step in producing a five year financial projection for your business plan using our financial projections template is to find the available startup capital needed to help fund the startup costs.
This is part of the How to Create Financial Projections Guide a series of posts on how our template is used to produce simple financial projections for a business model.
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 BSc from Loughborough University.