calculating startup capital requirements
DESCRIPTION
8. CALCULATING STARTUP CAPITAL REQUIREMENTS. Identifying Startup Resource Requirements. Startup resources include: People (founding team, employees, advisors, independent contractors) Physical assets (equipment, inventory, office or plant space) Financial resources (cash , equity, debt ) - PowerPoint PPT PresentationTRANSCRIPT
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CALCULATING STARTUP CAPITAL REQUIREMENTS
8
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Identifying Startup Resource Requirements
Startup resources include:• People (founding team, employees,
advisors, independent contractors)• Physical assets (equipment,
inventory, office or plant space)• Financial resources (cash, equity,
debt) Bootstraping• Minimizing resources to keep low
overhead • Creating innovative combinations of
resources to generate competitive advantage and wealth
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Steps in Calculating Startup Capital Requirements- “Cash Flows”
Figure 8.1
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Steps for an Entrepreneur to Determine Resources Construct a Business Process
Map
Position the Venture in the Value Chain• Position determines
margins, customer, and pricing.
Create a Timeline, Milestones, and Triggers
Price for Feasibility Analysis
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pricing Strategies Product pricing is a part of marketing
strategy and financial strategy. How a product or service is priced is a
function of a company’s goals. Customer goals also influence
entrepreneurs’ pricing strategies. Converging on a price• Triangulate by taking into account costs, any
competitor pricing, and feedback from customers and value chain partners
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Startup Financial Metrics Customer acquisition costs (CAC) Average order size, time to reorder,
lifetime value per customer Revenues per salesperson and time to
revenue for direct sales For Web 2.0 Ventures: acquisition,
retention, revenue, viral coefficient Contribution margin Monthly burn rate
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Develop Financial Assumptions Estimate new product/service
demand: • Use historical analogy or substitute
products• Talk to customers • Interview prospective end-users and
intermediaries• Use the entrepreneur’s knowledge
and experience • Go into limited production
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Estimating Revenues, Expenses, and Startup Costs
Manufacturing businesses should develop physical prototype early to understand all that is needed to produce product.
Physical prototypes take time and more money than ultimate production costs.
Service companies should prototyped under a variety of the most common scenarios.
Experience in industry is valuable for tapping best industry intelligence.
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Sales Forecast Increases in sales are influenced by:• Growth rates in the market segment• New innovations offered to make the
product/service more attractive• Technological innovations to enable
production at a lower cost
Expenses Items to consider:• Cost of goods sold (COGS)• Sales, general, and administrative
expenses (SG&A)
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Calculating a Startup’s Cash Requirements
Step 1: Develop cash flow statements• Clearly depicts cash inflows and
outflows
• Add contingency factor for safety
• Identify types of capital resources required: capital expenditures, startup expenses, working capital, safety margin
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Assessing Risk Analyze financial risks and
benefits.• Is the business financially feasible?
• Is there enough money to make the effort worthwhile?
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
New Venture Action PlanDetermine the startup metrics for your
company.Gather the numbers you need for performing
your financial analysis.Gather sales forecast data through
triangulation.Create a cash flow statement from startup
until a positive cash flow is achieved.Perform a cash requirements assessment to
determine how much capital you will need to start the business.
Determine whether this venture is financially feasible.
End of Chapter 8