|CALCULATING START UP COSTS AND OBTAINING
Whether you are thinking of starting a new venture or need to grow an
existing venture, you are going to need money. Access to finance is an
important resource for any business, because without it, your business
cannot function. Where you get your finance and how you allocate it will
have a major impact on the future success and growth of your business.
Calculating your capital requirements
Whether you are needing finance for the start up of a new business or to
grow an existing business, you need to first do some careful planning.
You need to determine the following:-
•What are your capital requirements?
•How much internal finance do you have?
•How much external finance do you need?
•How much will you realistically be able to access from a lending
•How much can you afford?
•What other financial options are available?
Calculating Your Start Up Capital
The start up costs of your business venture include all the expenses
that need to be covered from the origin of your idea, right through to
when the money first starts to come in from your products and / or
Your pre-start up costs include:
The cost of the market research
you need to do into the viability of your venture. You also need
to pay for registration of your company, registering a domain
name and setting up a website (if applicable), legal fees,
business and office stationery.
Deposit and rent for your
premises, deposits for lights and water, telephone applications
and setting up of a computer network.
Signs to identify your company
and advertising brochures.
The costs of the resources you
will need to buy to be able to start up and run your business.
This may just mean buying computers and office furniture and
equipment, or it may mean laying out large amounts of money for
manufacturing machinery. You may not be sure what these expenses
might be, so you need to conduct research into similar
businesses in the same industry as you intend to operate in. The
resources you need and the cost of them, will vary enormously
depending on the type of industry you plan to operate in.
Raw materials for manufacture.
Calculating Your Working Capital
The working capital for your business is the money you will need to
cover your monthly expenses. When you are calculating your working
capital, you need to ensure you have enough capital to cover all your
monthly expenses. These will include:
Don’t forget in your budget for
working capital to include the hidden costs such as:
Interest on your overdraft
General bank charges.
Bank interest charges for any
Interest lost when your customers
The Break Even Point
Calculation that you include in your business plan is a very important
factor in deciding whether you will receive finance for your business.
Of particular importance is your estimate time it will take you to get
to this point.
To be able to calculate your break even point, you need to have a clear
estimate of your fixed costs and your variable costs every month.
Fixed costs include:
Interest on any loans.
Variable costs include:
Cost price of stock items.
Some of your distribution costs.
Raw materials and consumables
Water and electricity.
Pricing your Product/Service
As an entrepreneur, when you are setting the selling price of your
goods/ service to be sold, it needs to be done very carefully. If your
price is too high, you may lose market share to your competitors, if
your price is too low you will lose profit.
For a business to be successful, the
price must cover the total cost of the goods produced plus as much
profit as the market will allow. When you determine the cost, you need
to take into account the total cost, which has three main components:
Cost of the actual goods sold + selling costs + overhead costs.
* Buy the SME Toolkit for more details