Capital requirementsA thorough planning of the capital requirements is therefore one of the basic elements of every envisaged new firm. You need to find out how much capital you require:
Capital requirements prior to start-up
Begin with the costs which accrue during your preparations for the launch. These include aspects like consultancy costs, notaries’ fees, fees for registrations and permits. Speak to your start-up adviser and work out together what the start-up costs will be.
Capital requirements for the initial operational phase
How much money do you need to spend to get your company up and running? Make a distinction between fixed assets, such as licences, real estate, buildings, machinery, vehicles and office equipment, on the one hand, and current assets on the other. The latter are the ongoing operational expenses for goods, administration, distribution, staff, etc., the cost of which you will subsequently cover from your income. Since in the initial phase you will have no or little money coming in, you will need to provide the funding for this initial phase in advance. Calculate a period of four to six months for this.
Capital requirements to cover living expenses
Do not forget, if you wish to set up a one-person business or a non-incorporated firm (e.g. a GbR), to include in your plans your personal expenses and your remuneration. This includes all the monthly spending you require for your private life. Calculate this generously and take account of unforeseen events like illness and accidents, but also repairs to house and car. In an incorporated firm, you as the employed director would draw a salary. Therefore these costs should be included as staff costs. Establishing the level of your personal spending thus serves as a basis for the level of your monthly “salary” and for safeguarding your lifestyle.
Financing the capital requirement
How much capital will your company earn to cover the costs, and how much additional capital will you initially have to invest in your company? In order to establish this, you need to ascertain the liquidity, i.e. the solvency of your company. Before the launch, you must initially estimate how high your revenues will be in the first few months. After the launch, you then produce your monthly liquidity plan on the basis of actual figures. You will need your liquidity plan to work out how much money you will be taking in in order to finance all your costs, including your personal expenses. If your costs are higher than the revenues, you will have a shortfall and will need to inject extra capital from outside, i.e. either from your personal savings or from third parties.
Third-party financing of capital requirements
If you find that you need to finance your project not just from your own financial assets, but also using government assistance loans and/or bank loans, you should work out how high the monthly interest payments and repayments of principal will be. In the case of government assistance loans, the repayment of the principal is usually delayed. You need to include the repayments of interest and principal in your planning of capital requirements. After all, these too are costs which (possibly with the exception of the repayments of principal) will be borne by your company from day one.