How to estimate how much your expenses will cost
Pinpoint the Right Tax Forms
Before you start gathering your financial records, it’s important to alignyourself with the right tax forms. Each form will give you a betterunderstanding of the direction you need to take.âSubmitting the wrong IRS form is a waste of your valuable time. So, here’s thenitty-gritty on the different types of tax forms, according to your businessstructure:â * Schedule C – These forms are for sole proprietors. * 1099-MISC – Sole proprietors may also be able to use this form. * Form 1120 – These forms are for C-Corporations. * Form 1065 – These forms are for standard partnerships and multi-member LLCs. * Form 990 or Form 990-PF – These forms are for nonprofits filing as public charities or private foundations, respectively. * Form 8832 – This tax election form is for any eligible entity to elect how it will be classified for federal tax purposes, as a corporation, a partnership, or an entity disregarded as separate from its owner.â
Writing Off Costs of Starting A Business
If this is your first year filing taxes for a new business, you may qualifyfor tax breaks specific to essential startup costs incurred. Qualifyingstartup expenses fall within three key categories:â * Creating the business. May include market research, product analysis, travel related to site/location selection and more. * Launching the business. May include costs of hiring and training employees, travel expenses related to suppliers and distributors, marketing expenses, legal fees, accounting fees and more. Does not include the cost of equipment, which is depreciated under normal business deduction rules. * Organizational expenses of forming the business: May include incorporation paperwork, legal fees, state organization fees, accounting fees and more.â
Filing Startup Business Taxes Right
Taxes sure do sound like a lot of legwork, don’t they? The truth is, taxesdon’t have to be your problem. All business owners have to do is be a sticklerfor paperwork. Whether it’s you or a lovely assistant, be a hound dog forcopies of everything – invoices, receipts, and bank statements for sure.âBut, the reason taxes don’t have to be your headache is because you can askyour bookkeeper to wrap your statements and invoices up in a bow and send themoff to your accountant in one fell swoop. The rest, as they say, will behistory.âAt Zeni, we can fill this need (plus some!) for all customers enrolled in aZeni Bookkeeping, Full Service, or CFO Plan by helping you maintain accuraterecords for your business year-round, and manage your annual tax preparationsand filings.âBuilt specifically to meet the needs of startups, Zeni gives startups an AI-powered finance team to automatically manage everything finance-related fortheir business â bookkeeping & accounting, invoicing, bill pay, yearlytaxes, reporting, expense management, and more.âAvailable to Zeni customers only, Zeni Tax handles federal, state and localtax returns â including the R&D Tax Credit when applicable â as well asyear-round tax and compliance support for its customers for a low annual fee.â * Deep industry expertise: Our team of tax advisors are led by a highly-qualified CPA with 10+ years of experience in U.S. corporate tax advising, working for companies including WhatsApp, FitBit, Cloudera, Ring Central and more. * Ongoing support for optimized filings: Tax advisor support year-round, to ensure we’re optimizing your bookkeeping and accounting for taxes all year long. * Flat fee: Zeni charges its customers a low, predictable fee of $2,000 for annual state, federal and local taxes. Period. * Consolidation of finance functions: One fully-integrated finance team to manage every aspect of your company’s finances, soup to nuts.âInterested in learning more? Sign up for a demo and discussion of how Zeni’sfinance professionals can make tax season a breeze for your company, andbeyond tax season, how we can help manage every aspect of your company’sfinances with ease. ðâð Like what you read? Sign up to receive the latest blog posts, eventinvites and updates from Zeni.How to Calculate Small Business Startup CostsWhat will it cost to start your business? It’s hard to know for sure, but it’simportant that you start planning early on to avoid any unforeseen expenses.Launching a successful business requires preparation. And while you may notknow exactly what those expenses will be, you can and should begin researchingand estimating what it will cost to start your business.
What are startup costs?
Startup costs are expenses incurred before the business is running. These arethe bills and expenses you will need to cover leading up to the launch of yourbusiness. While every business will need to account for specific startupcosts, your business will generally fall under either a brick-and-mortar,online, or service-based organization.
How to identify your startup expenses
Like when developing your business plan, or forecasting your initial sales,it’s a mixture of market research, testing, and informed guessing. It’s up toyou to adjust accordingly based on actual results over time.If you need a starting point, look at your competitors and industry benchmarksfor specific expense categories. You don’t want to directly copy the expensesyou find, but confirm if your estimates make sense based on current marketfactors. You may find that you have a competitive cost advantage based on ahealthy vendor relationship or a common expense you’re able to avoid based onyour business model.Now that may still leave you wondering, how do I actually estimate realisticstartup costs for my business? Start by making these three simple lists.
1. Startup expenses
These are expenses or upfront costs that happen before you launch and startbringing in any revenue. These should be split into one-time and ongoingexpenses. By separating them in this way you can give yourself a more accurateestimate of what it will take to launch your business. Here are some commonexpenses to consider in both categories:
* Rent * Payroll * Taxes * Legal services * Loan payments * Insurance payments * Utilities * Marketing costsThese makeup just a handful of the potential costs you’ll need to consider.Some will remain fixed, others will operate as variable costs and some mayshift between the two over time. By having them outlined this way from thestart, you’ll be able to keep better track of your expenses and identify anynatural cost-cutting options over time.
How to estimate how much your expenses will cost
Now that you have your potential assets, expenses, and starting cash it’s timeto put them all together to estimate your full startup costs. There are twopotential methods you can use to develop these estimates.The more traditional, which I call the worksheet method, involves creatingseparate worksheets for starting costs and starting financing.The more innovative, which we use in our LivePlan software, simplifies thiswith rolling estimates for expenses, assets purchase, and financing to managecash flow as a continuous process. Each option is valid so let’s dive into howto perform each method.
Consider startup financing as part of your startup costs
Of course, startup financing isn’t technically part of the starting costsestimate. But in the real world, to get started, you need to estimate thestarting costs and determine what startup financing will be necessary to coverthem. The type of financing you pursue may alter your startup or ongoing costsin a given period, so it’s important to consider this upfront.Here are common financing options to consider: * Investment: What you or someone else puts into the company. It ends up as paid-in capital in the balance sheet. This is the classic concept of business investment, taking ownership in a company, risking money in the hope of gaining money later. * Accounts payable: Debts that are outstanding or need to be paid after a certain time according to your balance sheet. Generally, this means credit-card debt. This number becomes the starting balance of your balance sheet. * Current borrowing: Standard debt, borrowing from banks, Small Business Administration, or other current borrowing. * Other current liabilities: Additional liabilities that don’t have interest charges. This is where you put loans from founders, family members, or friends. We aren’t recommending interest-free loans for financing, by the way, but when they happen, this is where they go. * Long-term liabilities: Long-term debt or long-term loans.
Aim for long-term success with realistic startup costs
Whether you use the LivePlan method or the traditional method for estimatingyour startup costs, make sure you’ve considered every aspect of your businessand included related costs. You’ll have a better chance at securing loans,attracting investors, estimating profits, and understanding the cash runway ofyour business.The more accurately you layout startup costs and make adjustments as you incurthem, the more accurate vision you’ll have for the immediate future of yourbusiness.Editor’s note: This article was originally published in 2018 and updated for2021.Business Expenses Definition
The value of inventory on-hand at the beginning and the end of each tax yearis used in determining the cost of goods sold (COGS), which is a large directexpense for many companies.COGS is deducted from an entity’s total revenue to find the gross profit forthe year. Any expenses included in COGS cannot be deducted again. Expensesthat are included in calculating COGS may include direct labor costs, factoryoverhead, storage, costs of products, and costs of raw materials.
Indirect costs are subtracted from gross profit to identify operating profit.Indirect costs typically include things like executive compensation, generalexpenses, depreciation, and marketing costs. Subtracting indirect costs fromgross profit results in operating profit which is also known as earningsbefore interest and tax.