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Startup - Finance and funding 1

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This presentation looks at two important aspects of finance for startups in the planning phase: Capital expenditure and Cashflow.

Published in: Business, Economy & Finance
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Startup - Finance and funding 1

  1. 1. Startup finance and funding - 1 Start your own business
  2. 2. 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)
  3. 3. 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.
  4. 4. 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.
  5. 5. 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.
  6. 6. 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”
  7. 7. 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’
  8. 8. “Cashflow is more important than your mother”
  9. 9. 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
  10. 10. 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)
  11. 11. 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
  12. 12. 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
  13. 13. 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.

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