Before a business earns its first dollar, money is already going out: registration fees, equipment, a website, initial inventory, insurance and professional advice. Tracking those startup costs carefully helps with funding, planning and your first tax return.

Estimate before you spend

The SBA's guide to calculating startup costs explains that working out startup costs helps you request funding, attract investors and estimate when you will turn a profit. It distinguishes between one-time costs and ongoing costs, and between fixed and variable costs, and notes that some costs are semi-variable.

A simple estimate lists:

  • One-time costs: registration and licences, equipment, initial inventory, deposits, website build, signage
  • Ongoing costs for the first months: rent, software, insurance, wages, marketing, loan payments

Add a buffer for things that cost more or take longer than planned.

Track every cost from day one

Even before you open a business bank account, keep every receipt and invoice. Once the account is open, route all business spending through it. The IRS recordkeeping guidance explains that records should support income and deductions, and its page on what kind of records to keep lists the supporting documents.

Categories that help later

When you set up your books, keep separate accounts for:

  • Equipment and other long-lived assets, which may be depreciated; see Publication 946
  • Initial inventory
  • Startup and organisational costs incurred before the business began operating
  • Owner contributions of cash or equipment

How startup and organisational costs are treated for tax has its own rules, so give your preparer a clear list with dates and amounts, and the date the business started operating.

Early setup steps

The IRS starting a business page lists early tax steps, such as choosing a business structure and getting an EIN if you need one. Our guides to business structure tax considerations and what business records to keep cover both.

Common mistakes

  • Paying startup costs from personal cards and losing the receipts
  • Recording equipment as an ordinary expense
  • Forgetting costs paid before the business bank account existed
  • Not recording money the owner put in as a contribution

Key terms

  • Startup costs: costs incurred before the business begins operating, such as market research or pre-opening advertising.
  • Organisational costs: costs of forming the legal entity, such as certain legal and filing fees.
  • Fixed costs: costs that stay roughly the same regardless of sales, such as rent.
  • Variable costs: costs that rise and fall with activity, such as materials.
  • Semi-variable costs: costs with a fixed part and a variable part, such as a phone plan with usage charges.
  • Owner contribution: money or equipment the owner puts into the business.

Startup cost tracker

A simple spreadsheet with columns for date, supplier, description, amount, category, payment method and receipt location is enough until your bookkeeping software is set up. Import it when the books are opened, so nothing is lost. Attach a photo of each receipt, and note whether the item was paid from a personal or business account.

How we help

We set up books for new businesses, including recording startup costs and owner contributions correctly. See our bookkeeping services or book a consultation.