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Startup Capital and Financing



         Objective: To understand how to estimate the amount of capital needed to
         start your business and what types of financing are most common for new
         businesses.




Novus Business and IT Training Program
Startup Capital
• Startup Capital = Resources Needed to Start
  Your Business
• One-Time Costs vs. Recurring Costs
• Financing Options: Debt vs. Equity




Novus Business and IT Training Program               1
One-Time Costs
• What do you need to open your business?
     – Example: Renovated building
     – Example: Machinery and equipment
     – Example: A delivery truck
• Current Needs
• Future Needs Based On Projected Growth


Novus Business and IT Training Program           2
Recurring Costs
• What monthly, quarterly, or annual expenses will
  your business incur?
     – Example: Rent
     – Example: Wages and Salaries
• When will the business’s profits be greater than
  the recurring costs?



Novus Business and IT Training Program             3
Financing Options
• One-Time Costs + Recurring Costs (until
  business is profitable) = Startup Capital
• Be conservative
• Two Main Sources of Capital
     – Debt
     – Equity



Novus Business and IT Training Program          4
What is Debt?
• Money you have to pay back
• Key Considerations:
     – Amount (“Principal”)
     – Payback Period
     – Interest Rate




Novus Business and IT Training Program              5
Benefits and Risks of Debt
• Benefits:
     – Simplicity
     – Interest payments may have tax benefits
     – No loss of control in your business
     – Debt is “cheaper” than Equity
• Risks:

        Bankruptcy = Loss of Your Business
Novus Business and IT Training Program           6
What is Equity?
• Capital in exchange for an ownership stake in
  your business
• Key Considerations:
     – Control given to outsiders
     – Investors have right to some or all of the business’s
       profits




Novus Business and IT Training Program                     7
Benefits and Risks of Equity
• Benefits:
     – No repayment
     – Reduced threat of bankruptcy
     – Strategic advice and support of investors
• Risks:
     – Loss of control over business’s strategy and future
       profits


Novus Business and IT Training Program                       8
Summary: Debt vs. Equity
                                         Debt                       Equity


                            • Straightforward          • Highly negotiable
 Advantages                 • Potential tax benefits   • No repayment terms
                            • No loss of control       • Valuable source of advice




                                                       • Potential loss of strategic
                            • Requires repayment
Disadvantages               • Threat of bankruptcy
                                                       control
                                                       • Potential loss of future profits



Novus Business and IT Training Program                                                      9
Capital Planning
• Same principles apply
• Retained Earnings = Accumulated Profits of
  Business
• Benefits of Retained Earnings:
     – Reduced need for additional debt or equity
     – Improved chance for business sustainability
     – Flexibility


Novus Business and IT Training Program               10

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Lesson 3: Startup Capital

  • 1. Startup Capital and Financing Objective: To understand how to estimate the amount of capital needed to start your business and what types of financing are most common for new businesses. Novus Business and IT Training Program
  • 2. Startup Capital • Startup Capital = Resources Needed to Start Your Business • One-Time Costs vs. Recurring Costs • Financing Options: Debt vs. Equity Novus Business and IT Training Program 1
  • 3. One-Time Costs • What do you need to open your business? – Example: Renovated building – Example: Machinery and equipment – Example: A delivery truck • Current Needs • Future Needs Based On Projected Growth Novus Business and IT Training Program 2
  • 4. Recurring Costs • What monthly, quarterly, or annual expenses will your business incur? – Example: Rent – Example: Wages and Salaries • When will the business’s profits be greater than the recurring costs? Novus Business and IT Training Program 3
  • 5. Financing Options • One-Time Costs + Recurring Costs (until business is profitable) = Startup Capital • Be conservative • Two Main Sources of Capital – Debt – Equity Novus Business and IT Training Program 4
  • 6. What is Debt? • Money you have to pay back • Key Considerations: – Amount (“Principal”) – Payback Period – Interest Rate Novus Business and IT Training Program 5
  • 7. Benefits and Risks of Debt • Benefits: – Simplicity – Interest payments may have tax benefits – No loss of control in your business – Debt is “cheaper” than Equity • Risks: Bankruptcy = Loss of Your Business Novus Business and IT Training Program 6
  • 8. What is Equity? • Capital in exchange for an ownership stake in your business • Key Considerations: – Control given to outsiders – Investors have right to some or all of the business’s profits Novus Business and IT Training Program 7
  • 9. Benefits and Risks of Equity • Benefits: – No repayment – Reduced threat of bankruptcy – Strategic advice and support of investors • Risks: – Loss of control over business’s strategy and future profits Novus Business and IT Training Program 8
  • 10. Summary: Debt vs. Equity Debt Equity • Straightforward • Highly negotiable Advantages • Potential tax benefits • No repayment terms • No loss of control • Valuable source of advice • Potential loss of strategic • Requires repayment Disadvantages • Threat of bankruptcy control • Potential loss of future profits Novus Business and IT Training Program 9
  • 11. Capital Planning • Same principles apply • Retained Earnings = Accumulated Profits of Business • Benefits of Retained Earnings: – Reduced need for additional debt or equity – Improved chance for business sustainability – Flexibility Novus Business and IT Training Program 10