These are common questions about small business financing. How much do you need? Where is it going to come from?
We will start from the first question. To know how much you need, you can make sales projections and your break-even point. The sales projection, although it may be somewhat rough at this point, it tells what is needed to achieve the objective. If you have forecasted that $300.000 in revenues is what you must receive to make the under taking of a venture worthwhile, you must decide what must be bought and how you must operate to make sure that you receive that sales. The following questions must be answered.
How much inventory will be required?
What type of equipment is needed and at what cost?
What supplies are needed to support operations?
How large of the facility is needed to house the operation?
What must be done to it to make it operational?
How many employees are needed to serve the target market?
What type of insurance must be carried?
How much must you spend on advertising or marketing campaign?
The most important source of information for initial capitalization is industry source. They have the experience you can learn. They can guide you to determine the amount of inventory, equipment, and others. Be sure you find a reliable source.
Determine who your market is and where they can be found. Think a location and find how much it will cost. If you know the size, you can project the utility cost of the operation. Discussing with the landlord on the condition of the property will determine how much work must be done to make it presentable to your customers. Then, choose supplies are need to serve the customer such as shopping bags, shipping boxes, and office supplies, all must be budgeted.
Determine how many people to serve the projected market as well. Having surveyed the competition can help you to estimate how much you should pay employees either hourly or salary. Review your plans with an insurance agent to receive an insurance estimation. Also, an accountant to determine what should be budgeted for payroll taxes. You can call city hall to find out about licensed required and its cost.
Then, it would be better if you have investigated advertising media and develop a strategy. What percent of sales does it require? What are your plans for a grand opening? How much it will cost?
Considering those elements allow you to fill in the missing blank of a capital needs statement. If you have done your homework up to those points, you can continue to the second question: ‘Where is it going to come from?’. We’ll discuss it in the next post.