How much do you need for your business?

July 3, 2013 by Ola Emmanuel (oakmedia@yahoo.com) 

Ola Emmanuel
| credits: File copy

So far on business plan preparation, we have examined several key areas on this page. We have looked at issues about conceptualising your business idea, your market and marketing plan, costing your products, what kind of business may be good for you, the financial planning, etc. Having put such areas in proper perspective, it is important we delve into another very key aspect that determines whether a business is strong enough to take off or the idea will only remain a dream.

Today, we shall look at the amount of money a business requires to run very well. The required capital, whether for a start-up or an injection to rejuvenate an existing business, is the amount of money that is needed to bring life into a business. In a new venture, it is the right amount needed to start the business in order for it to launch out without any avoidable hiccup. In an existing business, it is the money needed to reorganise, repackage, rebrand and re-launch a reengineered business.

Before you step out to open your business for customers, it is important you identify how much you will need for each aspect of the business structure so that you can safely tell the actual amount the business will need to run its operation smoothly. It doesn’t stop there, knowing the amount you need to spend in order to make the business run well will help you to identify where the money will come from. If you fail to answer how much money you will need as capital for the business and how the money will be made available before you launch out, soon you may hit a brick-wall that may sound the death knell of the business.

The required capital needed to do a good business is in two parts: capital investments and working capital. We shall analyse this carefully for proper understanding.

Without the right equipment being put in place, it is risky to start your business. Also your business must be sited in appropriate location where you have to spend good money on making the business premise suitable for your activities. The capital investment in your business is the money you spend on the business premise and the amount spend on physical or fixed assets – machines, tools, vehicles, furniture and other fittings, computers, etc.

A very instructive decision is about where you are going to operate your business from. Do you need to buy a property, construct a factory and office block or rent a whole apartment that you can amend to suit your business purpose? Perhaps you may have to lease a suitable property. Whatever your choice and, depending on your type of business, you may have to cut down on capital investments. This often makes many people to start their businesses from in their home. But there are some businesses that can be started where you live (at home) and there are some that you dare not start at home.

The unassailable fact is that your business needs good and appropriate premises to operate from. This will be a function of the level and manner of business you will be doing and the kind of clients you will be interacting with. If your business has to take on the competition and flex some muscle, it means your location, office setting, ambience, quality of fixtures, and the likes, have to measure up. This will require you spending good money!

Careful analysis of the above may lead you to identifying the factors that go into choosing an appropriate location to start your business. Such factors as size of space needed, expansion possibility, accessibility to customers, layout specifications, whether clients must come in or you are the one to go to them, etc. should be well thought out before you make final decisions. The analyses may lead you to categorising each factor as highly important, important, or not important.

In the same vein, it is important you analyse your business needs carefully to know the kind of equipment you have to put in place and to know the amount of money you need to invest in these assets.

Though it is possible to add to or improve the quality of equipment your business requires to operate very well, industry demand or level of competition in the market may mean that there is limit to how far you can manage. In this regard, it is your duty to be wise in reducing the initial amount to be invested on assets to the barest minimum but also ensuring you have in place the fundamental assets that will keep your business competitive.

To acquire these assets, you need money – some sort of sinking fund that you may not be able to recover until several years before your business turnover and profits can cover it. The money for the equipments should be available or you need to adopt other strategies in order that you can work round the challenges.