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 institution?
•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 services.

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:

• Rent.

• Electricity and water.

• Hire Purchase payments.

• Taxes.

• Insurance.

• Office Consumables.

• Salaries and wages.

• Raw materials and production expenses.

• Delivery and distribution expenses.

• Advertising.

Don’t forget in your budget for working capital to include the hidden costs such as:

• Interest on your overdraft account.

• General bank charges.

• Bank interest charges for any late payments.

• Interest lost when your customers pay late.

• Maintenance costs.

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:

• Rent.

• Salaries.

• Interest on any loans.

• Marketing costs.

• Consulting fees.

• Overhead costs.

Variable costs include:

• Commission.

• Cost price of stock items.

• Some of your distribution costs.

• Raw materials and consumables costs.

• 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