Startup finance and funding - 1Start your own business

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)

Startup capital

“$ 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.

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.

Intangible CAPEX

List the capital expenditure items required to launch your business.

Estimate the total expenditure required (with assumptions)

Allocate the amounts over a monthly time frame (no specific date)

Check sum - validate

Startup Pty LtdCAPEX budget

For the period leading to launch

ItemTotal

Amount Month 1 Month 2 Month 3Check

sum

Tangible          

Equipment 10,000     10,000 -

Fixtures and fittings 20,000   10,000 10,000 -

Construction 15,000 7,500 5,000 2,500 -

Total tangible 45,000 7,500 15,000 22,500 -

Intangble         -

Statutory 5,000 2,500 2,500   -

Prepayments 6,000 5,000   1,000 -

Deposits 15,000 15,000     -

Establishment 2,500     2,500 -

Total intangible 28,500 22,500 2,500 3,500 -

CAPEX budget 73,500 30,000 17,500 26,000 -

Assumptions:

Detail here the assumptions that you have made in preparing the figures.

CAPEX budget

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”

Working Capital

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’

Breakeven valley

“Cashflow is more

important than your mother”

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

Cashflow overview

“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)

Profit Vs Cashflow

Three distinct phases:1. Build the infrastructure2. Build the business

(customer benefit – customer acquisition)

3. Build the profit (owner benefit – management, cost control)

Building your startup

Infrastructure

•CAPEX – to make the business fly

Business

•Cashflow – to attract sufficient customers

Profit

•Sustainability – to deliver returns to stakeholders

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

Initial Cashflow budget

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.