By Denis Jakuc
What’s the fuel that powers your startup or business expansion? It’s money, pure and simple. These funds are called a business’s capital requirements. They include startup capital—the money you spend before you launch—and working capital – the money you need to cover the costs of running the business until it reaches positive cash flow, when the revenue coming in exceeds your expenses (at last!).
We cannot overemphasize the importance of accurately estimating your capital requirements. If what you’ve calculated falls short of what you need, your effort can fail before it ever gets off the ground. It’s better to overestimate than to underestimate capital requirements, as investors and lenders may not want to increase their monetary commitment to you if things aren’t proceeding as expected.
Here’s what you need to estimate capital requirements:
A Business Plan with Expense and Revenue Forecasts
This straightforward document has two parts. The first describes the products and services you’ll be offering and the customers you want to attract. Customers can be characterized by gender, age, income level, education, geographic location, etc. Most importantly, customers should be described by the need or needs they have which your products and services will meet. This first part of the plan also outlines the strategies and tactics you’ll use to introduce your business and grow it by both increasing revenues from existing customers and adding new ones through your marketing and sales efforts.
The second part of your business plan is a spreadsheet that maps out your expenses and revenue forecasts—ideally, for the first three years.
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