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The list of essential and unnecessary start-up expenses - Part 2

Three unnecessary start-up expenses

When you’re a new entrepreneur who’s being extra mindful of your bottom line, not all start-up costs are created equal. While the previous post discussed worthy investments, the business expenses in this category can be saved for later—or skipped altogether.

1. Expensive branding and marketing

Marketing matters for all businesses, whether they’re brand new or have been around for decades. But here’s the thing you need to remember: you don’t have to have a flawless marketing plan right out of the gate.

Business ownership is a learning process, and you’ll uncover a lot about your value proposition, target audience, brand identity and best-selling products or services as you get your feet wet.

So, resist the temptation to throw lots of money at a logo, paid ads or pricey promotional materials straight away and instead rely on social media and even word-of-mouth marketing to get some initial traction.

2. Large staff

Hiring is another one of those business expenses that can vary greatly depending on your business. But, even so, it’s smart to be intentional about building your staff and avoid hiring too many people immediately. The last thing you want is to end up with a huge team of employees without the ability to pay them.

As you get your business started, focus solely on your most pressing needs and hire to fill those. Keep in mind that doesn’t automatically mean you need a full-time or even part-time employee. You could outsource different tasks to freelancers or independent contractors to get the skills and expertise you need, without having to pay a consistent wage or benefits.

3. Travel and perks

Take a minute to think about some of the biggest, most successful companies today. We’re willing to bet tech giants like Amazon and Apple come to mind, and it’s important to remember that they had humble beginnings—in fact, they were both started in garages.

They’re proof that entrepreneurship (particularly when you’re in the lean start-up phase) takes a lot of grit but not a whole lot of glamour.

That means catered lunches, pricey business travel, parties and celebrations, and other nice-to-have perks aren’t a priority for you at the start. Stay focused on what you absolutely need to spend money on, rather than getting caught up with fun yet frivolous expenses. You can invest in those when you have more stable footing and better cash flow.

Keeping track of your startup expenses

We hate to sound like a broken record, but we’ll say this one more time: justifiable start-up costs will differ from business to business.

For example, a bricks-and-mortar retail shop that needs inventory, several part-time sales associates and a physical location will have much higher new business expenses than a single-member Pty Ltd that offers custom calligraphy services. Your business might need office space, while another business can operate from home for the foreseeable future.

So, there aren’t necessarily right and wrong start-up costs that apply across the board—and ultimately, you as the business owner are the one who’s best equipped to determine what’s worth investing in.

Regardless of the specific expenses on your business balance sheet or profit and loss statement, there’s one best practice you’ll want to keep in mind when making purchases for your business: track your expenses and keep all of your receipts (this is when an accountant can be especially beneficial). You’ll need those records for tax purposes.

Many of your expenses are what’s known as a write-off or a business deduction. This means that deductible expenses are subtracted from your business’s overall revenue. That lowers your taxable income which, in turn, can reduce the amount you need to pay in tax.

At tax time when you submit your tax return, you’ll list your business income and expenses.

Wondering whether or not you can deduct one of your expenses? SARS general rule is that a business expense needs to be directly related to earning your assessable income, but they also have a helpful guide for figuring out what you can claim.

Plan your expenses and start smart

When you’re starting a business, your goal seems pretty clear: you want to make money. After all, being profitable is ultimately the hallmark of a successful company.

To make that happen, you often need to invest some money to get up and running, but that doesn’t mean you should spend your rands with reckless abandon.

Instead, it’s smart to understand what you need, estimate how much that will cost and create a plan for how you’ll cover those expenses. That will help you make smart decisions and get your business moving in the right direction—without feeling like you need to search your couch cushions for loose change.

Contact us for assistance with start-up expense forecasting


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