Business Financing In a Nutshell
The business financing need: enough capital to cover operational expenses until the revenues generated exceed the cashflow costs of doing business. This means getting past the "break-even" point.
To estimate this need accurately you will need the services of an accountant familiar with the particular requirements of the specific industry in which you plan to operate.
The better you prepare in advance of your initial meeting with your accountant, the less time she will have to take to complete the job. The outline below is intended to help you do that preparation, and to keep you on track as you plan your business financing.
Fixed costs are those expenses that don't vary continuously as sales increase (or decrease). There are two kinds of fixed costs:
The above lists are not comprehensive. You will need to make much more detailed lists in accordance with the specific needs of your business financing process.
Variable costs are those items that increase more or less in proportion to the volume of your sales. The proportionality is not direct, because you can usually realize some savings as your business grows and you are able to buy what you need in larger quantities, and thereby receive some discounts.
Still, in the early planning stage you would do well to ignore the potential future savings, and plan as if such savings were not going to be available. Then if the savings become real, you will simply show a higher than anticipated profit.Typically, variable costs include such items as:
ReservesOnce you have accurately determined all of the above costs and expenditures, you will need to calculate the reserves required to stay in business from the day you start until the day your sales revenues exceed your expenses. This is the point at which the service of an accountant familiar with your industry becomes crucial. Such an accountant should be able to study your business plan and then calculate, with some accuracy, how much money you will need to tide you over until the business is paying for itself. He should also be able to tell you the margin of error involved in this calculation, so you can add to your capital requirements a contingency figure in case, as often happens, the revenues don't grow as rapidly as anticipated.
You should also consult your accountant about the advisability of starting your business with debts. This is no small matter, as debt service, if not properly anticipated, can kill your business before it ever really gets off the ground.
The Next Step
Once you have covered all your bases as outlined above, you will have in hand a number representing the total start up capital you will be seeking to complete your business financing. Your next step in the business financing process is to decide what form your business financing should take. To address this issue we need to examine the various