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Accounting - where to expenses get allocated?

We get this question a lot. So here is a summary of where to allocate expenses.

Expense Categories

First, let’s start with the primary expense categories and if that expense can be considered a fund expense or a management entity expense. Fund expenses are shared across all investors. Management expenses should be paid for by the managers as part of running the fund.

Expense Category Fund Expense Where to Expense
Fund legal documents preparation (PPM, Operating agreement, subscription agreement) Yes Fund LLC directly or Management LLC (w/reimbursement back at a later time)
State filings fees / registered agent fees Yes Fund LLC
Blue Sky filing fees Yes Fund LLC
Bookkeeping/Accounting costs Yes, for fund LLC. No for management LLC Both
Investor compliance costs Yes Fund LLC
Bank fees (including wires) Yes, for fund LLC. No for management LLC Both
Tax preparation costs Yes, for fund LLC No for management LLC Both
Fund management fees (mgr compensation) Yes Fund LLC
Technology platform (Avestor) Yes Fund LLC
Fund marketing expenses Yes Fund LLC
Travel expenses No initially Yes after larger AUM Manager LLC initially Fund LLC option later

Budgeting expenses

Starting and running a fund is like any other business. You have to spend money to make money. Sponsors should be prepared for startup and operations costs just like any other business. The big difference is that while many of the costs are initially borne by the fund manager, they are considered fund expenses, and the fund manager can get reimbursed back by the fund and its investors as earnings start to flow back from investments.

Below is a range of expenses fund managers should expect on Avestor’s platform:

Expense Category Estimated Cost Notes
Fund legal documents preparation (PPM, Operating agreement, subscription agreement) $10,000 Initial fund manager cost Best to amortize back to fund as fund expense over a period of years
State filings fees / registered agent fees $800 State filing fees & registered agent fees for 2 LLCs
Blue Sky filing fees $200-$1500 Paid by fund to the state the 1st time an investor invests from that state. For most states, it’s a one-time fee but some states have annual renewals.
Bookkeeping/Accounting costs $500 annual independent CPA review of books. Avestor also provides bookkeeping & accounting support at no additional cost for the fund. This is a shared resource model, but we expect that a majority of funds will not have to pay additional bookkeeping/accounting costs.
Investor compliance costs $50 per investor Some funds absorb costs while others have investors pay for their own accreditation letters & checks.
Bank fees (including wires) $0 - $30 / month Monthly fees are minimal, wire fees vary.
Tax preparation costs $800 to $1000 for the return plus $50 - $100 per investor K1 Tax preparation costs scale with number of investors.
Fund management fees (manager compensation) Varies Changes per deal based on deal disclosure
Avestor’s platform Initial setup fee + 0.35% to 0.50% annual of assets under management
Fund marketing Varies Expenses vary depending on strategy
Travel expenses Varies Once a fund grows larger (over $10 million AUM), you can consider this but initially we recommend not adding travel expenses due to impact on overall fund expenses.
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