1.1 Calculating Start-Up Capital or Establishment Costs
Start-Up Capital
Start-up capital is what entrepreneurs use to pay for any or all of the required expenses involved in creating a new business. This includes paying for the initial hires, obtaining office space, permits, licenses, inventory, research and market testing, product manufacturing, marketing, or any other operational expense.
- Product development cost (including research and development)
- Legal costs (registration of a company, trademark etc)
- Product testing cost (if you have produced your own product)
- Market analysis costs
- Cost of purchasing or renting business premises
- Cost of machinery and equipment
- Cost of installing machinery and equipment
- Office equipment
- Provision for operating costs for at least three months. This is for expenses such as salaries and wages, rental, advertising, interest (if money has been borrowed), and
- Sundries (small expenses put together under one heading).
- `- Salaries and wages
- – Unemployment Insurance Fund (UIF) contributions
- – Registration of workers
- – Secretarial services
- – Auditor’s fees
- – Rental of buildings, machinery and equipment
- – Equipment
- – Water and electricity services
- – Insurance
- – Maintenance of buildings
- – Interest on loans
- – Bank charges
- – Advertisements
- – Pamphlets
- – Demonstration of products
- – Sponsorships
- – Competitions
- – Postage
- – Telephone and faxes
- – Stationery and printing
- – Local taxes
- – Legal expenses
This involves replacing of furniture and equipment etc
These entail all costs not included under one of the above subsections.
- how much capital you need if you are seeking external funding;
- the security you can offer lenders;
- how you plan to repay any borrowings, and
- sources of revenue and income.
You may also want to include your personal finances as part of the plan at this stage.
Tasks
Work through the example that follows and then using the same methodology and procedure, work out the financial requirements of your own business.
Think Point
When working through the example below think of all the items you would need to include should you wish to start your own business.
- Remember this was only an estimate
- You need to get 3 quotations from 3 different shops to confirm your estimations and which is necessary for your Business Plan
Case Studies
Watch the following video to gain some insight into how start-up capital is calculated: