I had a whiz-bang financial model when I set out to ramp up Kohort, the social media start-up I co-founded. But even the best formatting and niftiest Excel tricks won't overcome the wrong inputs in your expense line.
Here are the top five expenses you could easily forget to plan for:
- Benefits & Employee Taxes: If you haven't made payroll before you might not know that the government charges you for employing people. The taxes vary by state and city, but be ready to pay above and beyond salaries. In addition, if you offer your team benefits, which you'll likely need to do in order to be competitive in the labor market, that'll add to the bill.
- Office Brokers & Equipment: When you get your first office (which might take a while, even after a seed round), the building will typically pay the broker fee. There are some instances, however, in which the building won't pay it and you'll need to. You can probably avoid this fee by asking brokers about it upfront, but you ought to set aside a little money for it if you're planning to get an office during the horizon of your budget. The other thing to consider is office "fitup" costs—furniture, electrical wiring, Internet installations, cleaning, and appliances. You might end up paying for these in addition to monthly rent…and it can easily exceed tens of thousands of dollars.
- Property & Casualty Insurance: Another line item that blindsides most entrepreneurs is insurance. There's insurance to cover you if your programming code doesn't work, insurance to protect your board members from lawsuits, and life insurance on "key" employees (founders). Insurance can add up. In the early days of the company, you could be looking at a $10,000 to $15,000 annual insurance bill.
- Trademarks & Domains: While most of us budget for legal fees tied to corporate formation, partnership agreements, and investments, there is a sneaky set of expenses that lurk around the corner if you're building a consumer-facing company. If you have a brand you'll want to protect, you'll need to file for a trademark, which can quickly run you a few thousand dollars, even on the cheap. Furthermore, you might find yourself needing to gobble up all of the domain extensions relating to your brand to ensure that there isn't a gambling site being operated offshore on your URL. If you rack up all of the offshore domains you might add $3,000 to $5,000 per year.
- Software Services: You and your team will need to use services to build your company. One company will need to host your website, another party will charge you to provide an email service, and if you have developers they'll need to license development software. While these expenses usually won't break the budget, they typically scale with your team. An incremental hire could cost more than you think.