IDENTIFY ALL YOUR COSTS AND INVESTMENTS

Accelerate your business with these expert tips on "Identifying costs and investments". Analyse and discover this TIP!

To make feasible (+) economically your project starts to identify all costs and investments: cash outflows, fixed and variable costs and investments (we leave financing for another future phase). For the moment forget about financing! Identify all your costs from the key activities (+), key resources (+), key partners (+) of your canvas (+) you have already worked on during the first sprint (see+) of the acceleration programme.

At what point do I start to identify my costs and look at economic viability? Only when I have validated the right part of the CANVAS (the emotional part). Only when I have already validated the customer problem solution is when I start with the left part of the CANVAS, the rational part. In other words, I only start to quantify costs after validating the market, when it is clear to me that my value proposition (+) is sufficient, it satisfies a need for a segment (+) and I am clear about how much the customer is willing to pay. After the product market fit (+) is when I am clear about which activities are key, which resources are key, which partners are needed and therefore I can see my cost structure (+). Only after we see that I fit in a market we start with the left part of the Canvas.

IDENTIFY ALL YOUR COSTS. ACTIVITIES, RESOURCES, PARTNERS

Focus on identifying all the items necessary to start up your new business. Do not take into account expenses or investments that you already have from other activities, only take into account the new items that will appear with your new business ("differential costs and investments" see TIP). I can see typical games: personnel (own staff), external subcontracted services (advertising, rent of premises), consumption (electricity, raw materials, goods). Take a company's accounts, or ask a friend with a similar company to let you see the typical items of the 435 declaration. Each key activity involves an outflow of money, as does each key resource or partner.

Order the items of expenses and investments by size, from the biggest to the smallest, and pay more attention to the big ones, don't get lost in the small expenses! Ask for quotes, ask suppliers, ask other entrepreneurs... Show the data to advisors in the TIPS mentor. Being inquisitive has its rewards. Include in your Treasury (+) all identified cash outflows in your Excel.

DIFFERENCE BETWEEN TYPES OF COSTS

After identifying all items and having an approximation of a supplier: 

• Differentiate between Fixed or Variable costs (resources that I use in less than a year, every month...) and investments (resources that I need for more than a year).
• Fixed costs (which do not change during a month).
• Variable (varying with sales).
• Investments (last more than one year).
• Difference between fixed cost in the month, variable cost depending on sales.
• There is a fourth way of paying for a resource, which is by handing over part of our capital, i.e. by making you a partner, I pay with my company's capital, media for equity (I provide capital in exchange for advertising), services for equity, tech for equity, sales for equityBeware of falling into the error of thinking that by giving capital you have the resource forever!!!!

I want you to learn to play by passing each game from one concept: FIXED (F); VARIABLE (V); INVESTMENT (I); PARTNER (S).

Once you have understood the difference I invite you to reflect on each item you have identified how you can negotiate with the supplier the same output with different V, F or I concepts. Each output of money is F, V, I or S depending on how we negotiate it with each supplier. In other words, costs are not F or V or I by themselves, by their own nature, they are whatever I want them to be. Each supplier tends to tend to a usual form (F, V, I...) that we are not usually interested in and therefore you have to learn how to negotiate.

• Ex: In a fast-flowing river, if you don't paddle, you go straight to the rocks. It is the same for the entrepreneur: if you don't negotiate with suppliers you are unlikely to get what is best for you. 

Play with each money OUTPUT identified by inviting them to make the right pitch to change strategy: fixed, variable, investment or partner... Use creativity.

PRACTICE WITH THESE EXAMPLES

SOFTWARE DEVELOPMENT:

• INVESTMENT payment by total closed budget.
• FIXED EXPENDITURE I pay the same amount per month.
• VARIABLE EXPENDITURE I pay a % of the sales achieved.   
• PARTNER gives % of capital in exchange for development (equity for service).

MARKETING AND ADVERTISING:

• INVESTMENT payment by total closed budget.
• FIXED EXPENDITURE I pay the same amount per month to a marketing company.
• VARIABLE EXPENDITURE I pay a % of the sales achieved.
• PARTNER gives % of capital in exchange for development (sales for service).

PREMISES / OFFICE:

• INVESTMENT I buy the premises.
• FIXED EXPENDITURE I pay monthly rent.
• VARIABLE EXPENDITURE I pay a % of the sales achieved (example AENA).
• PARTNER I cede % of the capital in exchange for the contribution of the premises to the capital, i.e. I give shares to the owner.

STAFF:

• INVESTMENT In the old days you used to buy a slave on the market. This is obviously no longer possible.
• FIXED EXPENDITURE I pay one salary per month.
• VARIABLE EXPENDITURE payment in salary of % of sales achieved.
• PARTNER assigns % of the capital in exchange for its shareholding as a partner.

HOW DO WE GENERATE VALUE AND HOW MUCH WILL IT COST US?

Each activity incurs costs and investments, and each key resource incurs costs, and key partners also incur costs. Focus on identifying all items of fixed costs (which do not vary during a month), variable costs (which vary with sales), investments (which last more than a year). I can see typical games: staff (own staff), subcontracted external services (advertising, renting premises...), consumption (electricity, raw materials, goods...), etc. Take the accounts of a company, or ask a friend with a similar company to let you see the typical items of the 435 declaration. Each key activity represents an output, the same for each key resource... Ask for budgetsask suppliers, other entrepreneurs... show the data to advisors in the TIPS (+). There is a prize for being a questioner!!!

Types of expenditure of a new company

A new business may have several types of expenses to consider in its financial plan.

Some of the common types of expenses that a new business may face include:

1. Start-up costs: Start-up costs are the costs associated with setting up the business. These expenses may include obtaining permits and licenses, creating a website and promotional material, hiring a lawyer or accountant, and purchasing equipment and supplies needed to start the business operation.
2. Fixed costs: Fixed expenses are costs that remain constant regardless of the level of production or sales of the business. These expenses may include rent for office space, utilities, insurance and salaries for full-time employees.
3. Variable costs: Variable expenses are costs that change depending on the level of production or sales of the company. These expenses may include raw material and supply costs, advertising and marketing expenses, and shipping and delivery costs.
4. Staff costs: Personnel expenses are the costs associated with hiring and paying employees. These expenses may include salaries, insurance premiums, contributions to retirement plans and other employee benefits.
5. Tax costs: Tax expenses are the costs associated with paying federal, state and local taxes. These expenses may include corporate income tax, sales tax and other taxes.

In general, you need to identify all types of expenses necessary for your operation and include them in your financial plan. Careful identification and management of expenses can help ensure that the business has the resources it needs to operate successfully and grow over the long term.

What are the start-up costs for a new company?

The start-up of a new company involves a number of expenses necessary for its creation and launch.

Below are some of the common expenses that can arise when starting a new business:

• Registration and legalisation of the company: includes the costs associated with registering the company, obtaining the necessary permits and legalising the company.
• Market research: involves the cost of conducting market research to identify the demand for the product or service to be offered by the company, as well as to analyse the competition and the market in general.
• Product or service development: includes the costs associated with the creation and development of the product or service to be offered by the company.
• Marketing and advertising: includes the costs associated with promoting the company and its offer. This could include the creation of a website, advertising online and in traditional media, and the creation of promotional material.
• Recruitment of staff: includes costs associated with recruiting employees and building a team. This could include creating job offers, interviewing candidates and hiring a legal, accounting and human resources team.
• Rental of space and equipment: includes costs associated with the rental of physical space for the business and the rental of equipment necessary for its operation.
• Inventory purchase: includes costs associated with the purchase of inventory and raw materials necessary for the production of the product or service to be offered by the company.

How to differentiate between cost, expenditure and investment?

The terms "cost", "expenditure" and "investment" are important in the financial management of a company.

The following briefly explains the difference between these terms and why it is important to differentiate between them:

• Cost: cost refers to the value of the goods or services consumed to produce a good or service. It is a term used in the production process of a company. For example, if a company manufactures bicycles, the cost would be the value of the parts and components used to produce the bicycle.
• Expenditure: expenditure refers to the outflow of money from the company in a given period (in our case 18 months). Expenses are necessary to keep the business running. For example, office rent or employee salaries are examples of business expenses.
• Investment: investment refers to the outflow of money from the enterprise into an asset that is expected to generate income or profit in the long term. Investments can be in fixed assets (such as the purchase of property or equipment) or in intangible assets (such as the creation of a brand or the development of software). Investments are important for the long-term growth and development of the enterprise.

It is important to differentiate between these terms because each has different financial and tax implications. For example, costs and expenses are subtracted from revenues to determine the company's profit, while investments are depreciated over their useful life. Furthermore, costs and expenses are current (monthly, daily) expenses, whereas investments have a long-term impact on the company. In short, differentiating between cost, expenditure and investment is important for the financial and fiscal management of a company. Each term has different financial and fiscal implications, and it is important to understand the difference between them in order to make informed and strategic business management decisions.

Tips for an entrepreneur to identify the costs of the first 18 months of your business

Here are some tips that can be useful for an entrepreneur to identify the costs of the first 18 months of his or her business:

1. Conduct detailed financial planning: It is important for the entrepreneur to develop a financial plan that includes an estimate of all costs necessary for the creation and operation of the business in the first 18 months. The plan should include all start-up related expenses, fixed and variable costs and investments. 
2. Identify fixed and variable costs: fixed costs are those costs that remain constant regardless of the level of production or sales, such as rent, utilities, salaries and insurance. Variable expenses change depending on the level of production or sales, such as the costs of materials and supplies, advertising and marketing.
3. Take into account unforeseen events: It is important for the entrepreneur to include a contingency reserve in his or her financial plan. The reserve can be used to deal with unexpected situations such as repairing equipment, replacing inventory or hiring additional staff.
4. Regularly review and adjust expenditures and investments: it is advisable for the entrepreneur to review and adjust expenses and investments regularly, at least every month (at the start of a new month), to ensure that the business is on track to meet its financial objectives. Adjustment of the financial plan may be necessary based on changes in revenues, expenses and sales projections.

In general, it is important for the entrepreneur to have a clear understanding of the expenses necessary to set up and operate the business in the 18 months ahead. 

Case studies to identify all the costs necessary to start up a new company

Here are some case studies to help you identify all the expenses necessary to start a new business:

A CATERING COMPANY:

• Registration and legalisation of the company, obtaining permits and licences.
• Market research to identify the demand for catering services and to analyse the competition.
• Purchase or rental of kitchen and storage space and kitchen equipment.
• Purchase of ingredients and catering supplies.
• Recruitment of staff, including cooks, servers and delivery staff.
• Creation of a website and promotional material for marketing and advertising.

A CLEANING SERVICES COMPANY:

• Registration and legalisation of the company, obtaining permits and licences.
• Market research to identify the demand for cleaning services and analyse the competition.
• Purchase of cleaning equipment and supplies, such as hoovers, cleaning products and uniforms.
• Recruitment of staff, including cleaners and office staff.
• Rental or purchase of office space and office equipment.
• Creation of a website and promotional material for marketing and advertising.

A CONSULTANCY FIRM:

• Registration and legalisation of the company, obtaining permits and licences.
• Market research to identify the demand for consultancy services and to analyse the competition.
• Creation of a website and promotional material for marketing and advertising.
• Recruitment of staff, including consultants and office staff.
• Rental or purchase of office space and office equipment.
• Creation of training material and documents for the provision of consultancy services.

In general, the identification of the costs necessary to start up a new enterprise will depend on the type of enterprise and the specific needs for its operation. It is important to research and assess the costs and expenses of setting up and launching the business and to consider the additional expenses associated with its ongoing operation.