What do I need to know about operating expenses?

The operating expenses summarize how you spend money to operate the business. When creating a budget for a startup, it is helpful to group expenses into departments. For example, a typical technology startup might have four types of expenses:

  • Product and Engineering (e.g. product management; hardware engineering; software development; data science / AI / ML; quality assurance; devOps; R&D; etc)
  • Marketing and sales (e.g. brand marketing; lead generation and qualification; selling expenses; etc)
  • Operations (e.g. server costs for software companies; prototyping/parts costs for hardware companies; etc)
  • General & administrative (e.g. HR; finance; IT; etc)

For a startup, the #1 expense is almost always people costs (whether they are full time employees or contractors). 

Hardware startups also has significant prototyping costs, tooling costs, and sometimes they need to incur significant non-recurring engineering (NRE) costs as well. 

Software startups tend to be more cash-efficient in that their expenses tend to be low (e.g. monthly payments to cloud based services to host their software and support their software development environment).

 

Also view this article where you can download Charlie Tillett's comprehensive financial template in Excel format.

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