You wake up one morning with a brilliant business idea. You started talking to friends and colleagues about the idea, and everyone is impressed, giving a good hint that such business will be a huge success. Then you ask yourself, what do I need financially to start and make this business concept a success? This article provides some tips for startup.
There are different stages when starting up a business. A feasibility study is a mandatory step to identify the key factors for success and pitfalls. The study assesses various areas of the business, such as the target market or clients, strategic locations, marketing plan, permitting, capital expenditures, and operating expenditures.
A detailed feasibility study defines the structure of the company, either it is a Sole Proprietorship, a Partnership, a Limited Liability Company (LLC), or a Corporation. The structure will dictate how the overall financial requirements of the business will be managed and distributed.
The financial study does not only include the requirements to open the business but to see how much money is required before the business becomes profitable and self-sustaining. The required financials must be dimensioned in a way that the business will have enough funds to operate until the profit is sufficient to sustain the business.
Feasibility Study
The cost of the feasibility study does include not only the direct requirements of the business but also the fees of lawyers, consultants, and product campaigns. Lawyers and consultants provide legal assistance and expertise on legal requirements, registration and permitting, and importantly the insight about competition and the strategy to be ahead of the market.
Product campaign and sampling is also an effective move to test the customer and market, enabling to enhance the product or service before officially launching the business. Such a campaign takes time and budget that needs to be calculated as part of an early product campaign and improvement.
The overall cost of the feasible shall be clear and detailed for all stakeholders to agree and provide the funding requirements. The financial outlay for the feasibility must be sufficient to have a good insight before the business is launched. Otherwise, the risk of business failure or closure will be high.
Marketing and Advertising
The financial requirements for marketing depend on the targeted customer segment and the type of business. A large number of businesses have capitalized on the use of social media and the internet to reach target customers efficiently with a broad reach domestically or internationally.
Traditional marketing and advertisement can be expensive (e.g., TV Commercials, Billboards, celebrity endorsements, etc.). Such traditional ways may not provide the required customer traction since the medium is only tuned to a selected segment of the population. If you want to know more, you can search for KPMG Institutes for guides about financial marketing.
The cost of marketing can be high at the beginning of the product campaign that could include product sampling, entertainment / Shows, and endorsements of famous personalities. Then as the business grows, minimal budget for sustaining the marketing can be developed to retain customers and attract new prospective clients.
Capital Expenditures (CAPEX)
A detailed breakdown of capital outlay needs to be carefully listed and supported with supplier quotations, warranty agreements, and delivery time frames. This list shall include but not limited to the following requirements: Vehicles, Furniture and Fixtures, Equipment, Buildings, Land, Office Supplies, and IT (Software’s, Computers, Wi-fi Hotspots, Routers, etc.).
Furthermore, there are other related CAPEX costs during the process of recruitment. This cost includes job advertisements, agent or talent scout fees, signing bonuses, and other related packages to attract the right candidates to join the organization.
Operating Expenditures (OPEX)
Operating expenses of the business can make or break a business if not projected correctly in the beginning. The OPEX financial requirement contributes significantly to when a business will start to see the profitability. If OPEX is too high, the Return of Investment (ROI) may take a longer time. A balance of cost and customer satisfaction is the key.
Operating expenses includes the salary of all the staff, equipment maintenance, office supplies, rental, consumables (e.g., Printer Inks, gasoline), telecommunication connectivity (e.g., Fiber Internet Connection), mobile communications, permits and registration renewal, subcontracted services (e.g., Cleaning, gardening, plumbing, etc.).
Takeaway
All possible costs must be reflected in the financial requirements to start and operate a business. A well-defined business plan with the financials is an excellent material to justify to the investors or partners the required funding, demonstrate profitability, and illustrate the period of return of investment.
Additionally, a well-composed business financials must include the funds to cover business risk and the mitigation cost on how such risks can be overcome. An extensive insurance policy must be in place for a human made or natural event or the risk of legal litigation.
