Cal­cu­lat­ing cap­i­tal when start­ing your busi­ness

SMALL BUSI­NESS SE­RIES

Finweek English Edition - - ENTREPRENEUR - BY JACO VISSER

When you are pre­par­ing to launch a busi­ness, one of the most im­por­tant steps you need to take is to ac­cu­rately cal­cu­late the cap­i­tal needed. spoke to some ex­perts to find out more about this process.

Run­ning i nto a cash f low crunch is in­evitable for any busi­ness, ac­cord­ing to Ethel Nyembe, head of small en­ter­prises at Stan­dard Bank. To avoid this, en­trepreneurs will need to dis­sect all their cash needs as con­ser­va­tively as pos­si­ble.

“It boils down to bal­anc­ing the cash com­ing into the busi­ness with the cash f low­ing out of it,” Nyembe says.

When you draft a pre­lim­i­nary, or pro forma, cash f low state­ment for the first few months, you should in­clude a num­ber of items (see box).

Most i mpor­tant is the ex­pected rev­enue or sales of goods and ser­vices. Once en­trepreneurs have es­tab­lished a need in the mar­ket for a prod­uct or ser­vice, they should have a rough idea of the vol­ume of prod­uct sold or ser­vices ren­dered over a spe­cific pe­riod.

Banks, as an ex­am­ple of a po­ten­tial fun­der, would l ike to see a re­al­is­tic cash f low pro­jec­tion, ac­cord­ing to Alan Shan­non, head of small busi­ness bank­ing pro­fes­sional bank­ing sales at Ned­bank.

“En­trepreneurs tend to be too op­ti­mistic in their pro­jec­tions of sales,” he says. “Not meet­ing those pro­jec­tions may hit the en­tre­pre­neur’s cred­i­bil­ity. Con­ser­vatism is needed.”

The po­ten­tial busi­ness per­son also needs to en­sure that they do not chase sales with­out care­fully con­sid­er­ing busi­ness costs, ac­cord­ing to Nyembe. This is eas­ier when there is a struc­tured plan for the new busi­ness. A cash f low state­ment is one such tool to pro­vide fo­cus for an en­tre­pre­neur.

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