Detailing Your Capital Requirements


The old saying goes, "It takes money to make money." That doesn't necessarily mean that it takes a lot of money, but it does take some. Some entrepreneurs believe that revenue and sales can handle all their money requirements and that they can fund the growth of their company out of profits. This is rarely the case. It always takes longer and costs more.

Substantial start-up costs can be involved when starting or expanding a new venture. Then, there are the cash flow considerations. If you're selling a product, you will most likely have to pay for your inventory or the manufacturer of the product before you can generate enough sales to cover the costs of the product and your normal overhead. Same goes for a service company: You'll have overhead and personnel costs to cover before you make your first sale.

In most cases, this means you will need money or investment capital right off the bat. So if you're writing a business plan to raise investment capital (actually, even if you don't), you'll need to do the following:

  • Decide how much money you'll need in general and how you will use it (proforma).

  • Decide on where you will acquire the funds you will need.

  • If you have investors or are looking for a loan (through family, friends, or a 401[k], for example), decide how you plan to repay the loan or compensate the investors.

In addition, you should have a rough idea of how much money you will need for the following:

  • Advertising and marketing

  • Salaries and wages

  • Office equipment

  • Manufacturing equipment

  • Physical plant expenses

  • General operating expenses

A complete listing of all anticipated expenses is important. One line item can mean a huge unexpected expense. For a complete list of typical expenditures, see Write a Business Plan in No Time (Que, 2005) by Frank Fiore.

In your plan, describe these uses (and others) of the funds.

Getting the Dough

When it comes financing your business, you have to ask yourself a few important questions. How much do you need? What kind of financing is right for your business? Where will the funds come from? What will you be willing to give up for an investment in your company? Basically, start by asking yourself what kinds of financing you're likely to need and what you'd be willing to accept in exchange.

Are you willing to give up a piece of your company for the money you need? How much? And are you willing to give up control? If you want to maintain control of your company, you'll have to either give away less for less money, dip into your own pocket, or borrow the cash. If you borrow the money, how much can you afford? You'll have to make payments on any loans. Your budget (proforma) can tell you what you can afford and how much you can pay back over a time.

Web Resource: What Kind of Financing Is Right for You?

The Business Owners Idea Café is an easy-to-understand source of information on company financing. At its website, you can educate yourself on the different kinds of financing a business. You can also test your own attitudes toward the consequences of using various funding sources. You can find the information on financing options and the quick attitude test at www.businessownersideacafe.com/financing/kind_of_financing.php.


Personal Funding Sources

The most obvious source of capital is your own pocket. Many a small company was started on personal savings, home equity loans, personal credit cards, and 401(k)s. Your credit cards are a ready source of unsecured loans. If your credit limit is $5,000 to $20,000 or more, you already have at your disposal a preapproved loan. Okay, so the interest rate is not great. But if you shop around (or just look in your mailbox), you'll find many credit cards offering short-term introductory interest rates at a fraction of the rates credit cards normally charge.

You can also bank your home and get a home equity loan line of credit or a loan from the Small Business Administration (SBA). This is much easier than trying to get a business loan because your home is the collateral. Then, use the funds from the line of credit to invest in your business.

Money Borrowed from a Bank

Bankers are a nervous bunch. Unlike venture capitalists or individual investors, they avoid risk whenever possible. Including a well-thought-out business plan with your loan application considerably increases your chances of getting a loan. A formal business plan shows that you are serious enough to do formal planning. That's a message bankers like to see.

Funding Through Equity Investors

Two types of equity investors exist: the angel investor and the venture capitalist. If you choose the venture capitalist, you need to decide the amount of control that you'll surrender and the time spent finding the money rather than starting your business. Venture capitalists will most likely demand equal control of your business and input into managing your company.

Web Resource: Show Me the Money

The Web has many good sources of information on venture capital. For example, Capital Resource Library at www.vfinance.com has links to everything from how to locate a venture capital firm to details of security law and articles related to getting investors.


Angel investors, on the other hand, most often stay out of your business and act as guides and counselors. That's why they're called angels.

In the next chapter, we discuss why you should customize your Yahoo! store and whether you should do it yourself or hire an expert.




Succeeding At Your Yahoo! Business
Succeeding At Your Yahoo! Business
ISBN: 0789735342
EAN: 2147483647
Year: N/A
Pages: 208

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