Question

Give three examples of expenses that would be in a start-up budget that would either change significantly or not be in the budget of a business that has been up and running for years. Explain why these expenses change.

Answer 1

In the start-up phase, expenses such as initial capital expenditures, research and development, and marketing and branding are often significantly higher due to the need to establish a business foundation and market presence. As a business matures, these initial costs typically decrease as the assets and brand awareness are already in place.

Step-by-step explanation:

When establishing a start-up budget, certain expenses are particularly unique to the early stages of a business. Over time, as the business matures, these expenses may reduce significantly or become obsolete. Here are three clear examples:

1. Initial Capital Expenditures: This includes costs for purchasing long-term assets such as equipment, machinery, or initial inventory that are necessary to commence operations. As a business stabilizes, these expenditures decrease because the assets have already been acquired and only need regular maintenance or eventual replacement.
2. Research and Development (R&D): Start-ups often incur significant R&D expenses as they develop new products or services. As time goes on and products/services become established, R&D costs can decrease as the focus shifts from development to improvement and updates.
3. Marketing and Branding: Initially, a new business will allocate a substantial budget to advertising and consumer awareness campaigns to build brand recognition. An established business will likely continue to spend on marketing but not at the same high level as during its launch phase.

These expenses are higher during the start-up phase as the business is establishing its foundation and customer base. A good budget will take these factors into account and allow for adjustments as the company grows and its financial situation stabilizes.