Before starting operations you must be as realistic as possible to estimate the amount of capital needed to initiate and sustain the company during its first three to six months. This will be initial investment and next you do your capital raising.
Given that it takes time for the revenues to be higher or equal to the expenditures, it is essential to include a financial cushion in your capital raising plans. The cushion can mean the difference between success and failure, what will allow you to cover payroll, to pay debts to suppliers, pay loans and continue operations until the company is totally self sufficient.
Most new business owners tend to make very low capital raising considerations and fail to include operation costs that are not always easy to see. An example of this are safe deposits, fees for permits, estimated sales taxes, and membership dues for professional organizations.
When doing your capital raising you must also consider your personal financial needs. Not just the company needs capital to survive the first months of operation, the owner is also required, to be precise, the estimated initial investment must include an adequate margin for the owner while you work at the company. This margin can be in the form of salary or retirement privileges.
Capital raising for retail businesses or industries includes other expenses. In order to do your sales estimates think about how many customers you could realistically have in one year. You may try different scenarios. Use the size, type and location of your business to help you. Some people find it easy to do small questionnaires as forms of market research. The information that you collect will be valuable sooner or later.
You may be wondering then how you can do capital raising? There are different forms. You may choose to go to a financial institution and request a loan or you can choose to have an external investor.
If you decide to use capital from a bank for instance. You need to think about the interest rates you will be paying. The larger the amount you need, the higher the interests and the least you will have for other expenses. You may have no other choice though, but quote the machinery or equipment you will buy efficiently.
In on the other hand you can potentially get an external investor. Capital raising can be done through venture capital. An external investor that will give funding to the company in exchange for shares that he or she will later sell to a better price.
By Tilgnerpictures from Pixabay