Construction Business Environment 285
of different, unanticipated directions. You have to be flexible and be able to adapt to emerging
situations.- Financial security: Owning your own business is one of the better ways to gain wealth, provided
you know what is required. Starting a business is risky, but the chances of success are better if
you understand the challenges you will meet and resolve them before you start. Likewise, it is
essential that the new startup have a financial capability to survive the dry periods, which could
easily last a year or more; otherwise it may be prudent to reconsider the decision to be an inde-
pendent contractor.
In addition to the various bureaucratic and legal hurdles that an entrepreneur must overcome to in-
corporate and register a new firm, there are procedures as well as time and cost involved in launching
a contracting firm. These need to be examined before attempting to launch such a venture.
12.3 STARTUP COSTS AND CAPITALIZATION.
Start-up expenses can basically be segregated into: 1. investigatory, and 2. pre-opening costs. These
costs can be incurred over a period of several weeks or several years, depending upon the type of in-
dustry under consideration and the length of the search process.
Start-up costs would normally include any amounts paid or incurred in connection with 1. investi-
gating the creation or acquisition of an active trade or business, or 2. the actual creation of a new trade
or business. However, distinguishing which costs should be classified start-up expenses can be a daunt-
ing task. Not only are the rules vague, but the various stages of the start-up process determine the tax
classification of an expense.
In any case, there will be many startup expenses before you even begin operating your business. It
would be futile to hope to establish, operate, and succeed in setting up a business without adequate
funding. It is important to estimate these expenses accurately and then to plan on how to raise the re-
quired capital. Often, first-time business owners fail to consider or greatly misjudge the amount of money
needed to get their small business off the ground, and they fail to include a contingency amount to meet
unforeseen expenses. Consequently, they fail to secure sufficient financing to carry their business
through the period before it reaches its breakeven status and starts to make money.
To avoid being “undercapitalized,” you will need to do adequate cost planning during your pre-
launch phase. Most experts recommend that startup funding be adequate to cover operating expenses
for six months to a year. At the very least you will need several months to find customers and get estab-
lished. But to determine how much in financing to seek, you will need to develop detailed cost projec-
tions. Experts suggest a two-part process. First, develop an estimate of your one-time startup costs.
Second, put together a projection of your overhead and operating expenses for at least the first six
months of operation. Performing these two exercises will help to ensure that you put into place the nec-
essary financial cushion to start and stay in business.
Startup Cost Estimates.
Estimating the amount needed to start a new business requires a careful analysis of several factors. The
first step is to put together a list of realistic expenses of one-time costs for opening your doors, includ-
ing furniture, fixtures, and equipment needed. The list would also include the cost—down payment or