What are startup costs?

Startup costs are defined as the expenses incurred before a business begins operations. These costs can include a variety of expenses necessary to establish the business, such as legal fees for registrations and licenses, costs for equipment and inventory, marketing expenses to promote the business launch, and any initial rent or utility payments for the location of the business.

Understanding startup costs is crucial for entrepreneurs because these expenses need to be planned for and managed carefully in order to ensure that the business can sustain itself when it officially opens. Accurately estimating startup costs helps in securing appropriate funding and establishing a budget that supports the business’s initial phase.

The other options describe different financial aspects but do not pertain to startup costs. Recurring monthly expenses refer to ongoing operational costs after a business is established, profits are associated with income generated post-launch, and costs related to closing a business pertain to liquidation, which is unrelated to the initiation of business activities.