Raising Small Business Start-Up Capital is one of the most important activities you will be doing. Be it a large or a small enterprise, proper financial backup is essential for it to thrive.
For those looking to make it on their own, experts suggest that you should never be too careful about spending, especially in the crucial period of the inception of your venture. Most small businesses die out prematurely due to the lack of finances. Raising more money than you need could mean you have to pay excessive interest amounts or give up too much of your company. Understand the costs you would incur in the period in between the time you flag off your enterprise to the time it starts earning revenue.
It’s always safe to presume that you’d have spent more than you planned for, so the first requisite is to acquire suitable funds. It is advisable that you arrange for enough funds to cover the complete expenses of operation for six months to about a year.
These are the major areas where your small business start-up capital will be used. Make sure you estimate their cost properly:
- Preliminary expenses: These are the expenses that you incur before the commencement of your business. These expenditures are also referred to as formation expenses because they are incurred prior to the formation of your business.
- Professional expenses: These are expenditures that are paid to professional people who help you form your business. A few examples of such expenditure consist of accountant’s fees, fees paid to lawyers, expenditures incurred to make important and confidential documents, etc.
- Cost of goods sold: Here all the expenses that are incurred to make a product are referred to as the cost of goods sold. In other words, the total income earned minus your profit is the cost of goods sold.
- Expenditures incurred to sell and distribute: As the name suggests, these expenses are incurred for the purpose of distributing and selling the products in the market.
- Cost of marketing the product: These costs consist of expenditures that are incurred to promote and market the product. A few examples of such costs are advertisements, sales promotion, free samples, etc.
- Cost of technology: In every business, the use of technology is a must. This category of costs consists of expenses incurred on mobile phones, computer hardware, and software, internet connection, computer consulting, etc.
- Expenses incurred on administration: These expenditures consist of a package of goods, postage, stationery, rent, telephone, different kinds of commercial insurance, chairs, tables, etc.
- Salary and bonus: The largest chunk of your small business start-up capital will probably go here. In this category, you can include remuneration or salary paid to employees, workers’ compensation, bonuses, etc.
- One-time expenditure: All the expenditures which are only incurred once in the life of the business comes under this category. They consist of permits, licenses, starting inventory, housing, the cost of installing machines and fixtures.
- Monthly expenses: They are incurred every month all through the life of the business. They include telephone bills, rent, wages and salaries, the cost of advertisements, etc.
Once you can estimate the amount required under each expense head for the first year of your business (or until you generate revenue) you will be able to raise the right amount of small business start-up capital.