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You will need
to know how much will it cost to run your business and how much
revenue you are likely to generate.
The capital
requirements of your business vary depending upon several factors.
It is important that these factors are given enough attention
and analyzed carefully to avoid underestimation of financial resources
needed. Several entrepreneurs fail in their efforts because of
underestimated capital requirements resulting in a capital crunch
and eventually closure.
How
much Investment?
What are the funding methods available to you?
How much Investment?
Following
are the steps to take to better understand how much finance you
would require.
List of
possible expenditure
Prepare a list of all possible expenses you would incur. Divide
this into two sections.
1. Startup
costs
2. Recurring costs
Startup costs
include machinery, fixtures, equipment, starting inventory, professional
fees, license, advertising and promotional activities linked with
a startup. Recurring expenses could include salaries, insurance,
rent and utilities, advertising, supplies, interest payments for
loans, maintenance and others. You may consult an attorney and
an accountant in making accurate estimates.
Cash Cushion
Business is always a risky proposition. Before putting all your
money into one venture, you need to be absolutely sure that you
will have a cash cushion to rely on when things go haywire.
Budget
Preparation
Once you have listed all expenditure and the amount of cushion
you would require to start your business. Do not forget to cover
your living expenses as well. You are not in your homeland to
fall back on friends and family. Most businessmen curtail their
living expenses during the start-up period, however living too
harshly could warp your judgment and diminish your spirits.
When would
you break even?
Figure out when your business would break even i.e. when the gross
profit equals your fixed cost.
What
are the funding methods available to you?
1. Loans from Commercial Banks and Lending Institutions
2. Venture Capital
3. IPO
4. Government Financing
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