Investment required to start a business
“The Entrepreneur always searches for change, responds to it and exploits it as an opportunity!”
Quoted above is not only a saying but a true exhibit of how a man aspiring to establish his own business should retaliate to the dynamic environment we live in. As risk and reward go hand-in-hand, it is crucial for an entrepreneur to estimate the cost involved and income generated for any new business, whether you’re a fast moving start up or still weighing the pros and cons of whether or not to set up a new venture.
Though, the funds needed to ignite and propel a business may vary depending on the nature and type of business, here is a gist that lays down common steps to work it out.
Funds available with you: Initially, you should analyse the fact whether you have sufficient funds to start a business or not. Scrutinizing your income after deducting all your personal expenses will automatically lead you to the figure of funds that you have in hand, accordingly cut down the payments which you think can be avoided and add necessary expenditure which cannot be circumvented. These numbers will help you decide if your business is viable or not, and show you a quicker path to breaking even and long-term profitability.
Fuelling the business: After facing the crisis of financial crunch, take notes on how much is needed to keep the business going for a longer period. This process of incorporating a business is followed by taking account of the application of such funds at various stages:
- Initial Cost: These tend to be one-off cost items, including:
- Lease or purchase of buildings or land
- Permits, licenses or other compliance costs
- Equipment and/or machinery
- Shop fittings and/or office furniture
- A website and domain name
- Fixed Costs: These are bills and other costs you need to pay on an on-going basis, also known as overheads. These tend to be time-related like monthly phone bills or quarterly rates payments. Common fixed costs include:
- Utilities, e.g., electricity and internet
- Rent or mortgage payments
- Wages/ Salaries
- Variable Costs: These are expenses that vary depending on how much, or how little, your business produces and include:
- Raw ingredients
- Production materials
- Stock orders
In case of insufficient funds, investors and lenders can prove to be of utmost help, but their decision mostly depends on the history of your business. In case you step foot in the business market for the first time, only exceptional idea or skills can induce them to invest their money in your business.
Take expert opinion: An expert in the field of financing can give you clear insights into how much money is required to start and run the business. Try to find an accountant or advisor who has a good track record with business similar to your own.
Analysing established businesses: An intelligent move to estimate profits and costs is by studying and analysing other businesses in the same industry. This could not prove to be full proof at all times, but still serves the purpose.
Critical evaluation of sources and application of funds of last 12 months is necessary to keep a check on what was planned and how far the business has come. It’s common to operate at a loss when first business is started. One has to make sure that they have enough money in reserve to sustain during this period. A cash flow forecast will help predict whether you’ll need to borrow money, and if you are financially prepared for running the business.
Still uncertain on how to start a business or run already established business? Feel free to consult our experts for this or regarding any other information you are sceptic about AJSH & Co. LLP
To facilitate the process of setting your business, we offer a wide range of services including company registration, accounting and bookkeeping, statutory audits, tax compliances, trademark registration and setting up of SEZ.