Startup finance and funding - 1 Start your own business
Startup capital Capital expenditure (CAPEX) = expenditure outlay required to launch the venture. To make it fly. Working capital = capital required to fund the losses until breaks even (covers its costs)
CAPEX “$ needed to get the plane off the ground” - Can be – tangible (physical) or intangible (non-physical) Tangible – vehicles, equipment, computers, shop fittings, leasehold improvements, initial stock. Intangible – statutory, prepayments, establishment, deposits.
Intangible CAPEX Statutory – architect, council fees, professional advice, business formation costs. Prepayments – insurance, rent in advance. Establishment – staff (training, set-up time) Deposits – rent (1-6 months) – utilities.
CAPEX budget Startup Pty Ltd CAPEX budget List the capital For the period leading to launch expenditure itemsItem Total Check Amount Month 1 Month 2 Month 3 sum required to launch yourTangibleEquipment 10,000 10,000 - business.Fixtures and fittingsConstruction 20,000 15,000 7,500 10,000 5,000 10,000 2,500 - - Estimate the totalTotal tangible 45,000 7,500 15,000 22,500 - expenditure requiredIntangbleStatutory 5,000 2,500 2,500 - - (with assumptions)PrepaymentsDeposits 6,000 15,000 5,000 15,000 1,000 - - Allocate the amountsEstablishmentTotal intangible 2,500 28,500 22,500 2,500 2,500 3,500 - - over a monthly timeCAPEX budget 73,500 30,000 17,500 26,000 - frame (no specific date)Assumptions: Check sum - validateDetail here the assumptions that you have made in preparing thefigures.
Working Capital The forgotten funding requirement Primary concern of funders (investors, banks) Experience tells - “Twice as long, twice as much, half the returns” “Crossing the breakeven valley”
Breakeven valley Financial breakeven – meets all its external demands. Sustainable breakeven – pays the owner a replacement wage and provides ROI 40% Equity breakeven – repays capital invested You need to manage your ‘cashflow’
Cashflow overview Cashflow is your ability to pay your bills as they become payable ( or due) Cashflow = solvency. Corporations law – not required to be profitable, but must be solvent. Directors can be charged for insolvency. “Cash is king” for startups
Profit Vs Cashflow “The pursuit of profit can send you broke” You can make a profit and still not be able to pay your bills. Prepayments (insurance) Debtors (payment terms) Stock (bulk discounts) GST (accrual accounting) CAPEX (unplanned) Cash to Cash cycle (delay)
Building your startup • CAPEX – to make Three distinct phases:Infrastructure the business fly 1. Build the infrastructure 2. Build the business • Cashflow – to (customer benefit – attract sufficient Business customers customer acquisition) 3. Build the profit (owner • Sustainability – benefit – management, to deliver returns cost control) Profit to stakeholders
Initial Cashflow budget Build it digitally – Microsoft Excel Flexible and quick to build ‘What if’ scenarios Accuracy Timeline – min. from launch to financial breakeven Time period – monthly Detail your assumptions
Summary • Prepare a CAPEX budget – funds required to launch your venture • Prepare a Cashflow budget – explains how you will fund your venture until breakeven. • Include them both in the financial planning section of your business plan.