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Start-Up Budget: Definition & Example

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  • 0:00 Definition
  • 0:37 Example
  • 2:20 Other Items to Consider
  • 2:51 Lesson Summary
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Lesson Transcript
Instructor: Michael Cozad

Michael is a financial planner and has a master's degree in financial services.

This lesson will define a start-up budget. We'll look at an example budget from the perspective of a potential lender, along with a list of items to remember when building the budget.

Definition

There are numerous costs to take into consideration prior to establishing a business, and without the appropriate research, many items can be inadvertently left out. Prior to receiving funding for a loan from a bank or investor, it's common for parties interested in investing or loaning money to you and your new business to request an itemized list of income and expenses during an initial period.

A start-up budget is an itemized list of income and expenses for a new business, which often covers the period up to commencing operations and perhaps a small amount of time after operations have commenced.

Example

Think of it this way: your friend Kyle has approached you to loan him $5,000, since he's going to start a business that specializes in developing apps for smartphones. Before writing a check for $5,000 to Kyle and his new business, you would certainly like to know his start-up costs and how the business is going to make money in the future, right? You would like to see Kyle's start-up budget to know you have a good chance of getting your money back, hopefully with interest.

You request this list from your friend. Although you are the first potential lender Kyle has approached, he is one step ahead of you. He knows if he is to get the $20,000 he requires to begin the business, he needs to present this list of income and expenses to you prior to you writing him a check.

Kyle hands you this start-up budget for his first 90 days:

Sample Start-Up Budget
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During those first 90 days, he doesn't anticipate any fees other than what is shown on his budget, since he's working out of his home. After 90 days, Kyle expects the app to be ready for sale. Are you prepared to give him the loan? He's offering to pay you $250 for your share of the loans as interest. One thing to keep in mind is that all the income that he will receive is also a liability to him and the business that will have to be paid back. Hopefully, after the app is listed, he can pay back the $20,000 in loans.

Furthermore, how is Kyle going to cover the expected $6,000 shortfall during the first 90 days? Is he paying those expenses from a loan from himself to the business? If the app only sells $6,000, who is paid, and in what order? Is his $6,000 paid back first, with nothing remaining to go to the other lenders? These are all items that should be discussed and agreed upon prior to becoming a lender or investor in a start-up business.

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