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Startup finance and
     funding - 1
    Start your own business
Startup capital
         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)
CAPEX
   “$ 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.
Intangible 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.
CAPEX budget
                             Startup Pty Ltd
                                CAPEX budget
                                                                         List the capital
                        For the period leading to launch                  expenditure items
Item
                                Total                       Check
                              Amount Month 1 Month 2 Month 3 sum
                                                                          required to launch your
Tangible
Equipment                     10,000                       10,000   -
                                                                          business.
Fixtures and fittings
Construction
                              20,000
                              15,000     7,500
                                                  10,000
                                                   5,000
                                                           10,000
                                                            2,500
                                                                    -
                                                                    -
                                                                         Estimate the total
Total tangible                45,000     7,500    15,000   22,500   -     expenditure required
Intangble
Statutory                      5,000     2,500     2,500
                                                                    -
                                                                    -
                                                                          (with assumptions)
Prepayments
Deposits
                               6,000
                              15,000
                                         5,000
                                        15,000
                                                            1,000   -
                                                                    -
                                                                         Allocate the amounts
Establishment
Total intangible
                               2,500
                              28,500    22,500     2,500
                                                            2,500
                                                            3,500
                                                                    -
                                                                    -
                                                                          over a monthly time
CAPEX budget                  73,500    30,000    17,500   26,000   -     frame (no specific date)
Assumptions:
                                                                         Check sum - validate
Detail here the assumptions that you have made in preparing the
figures.
Working Capital
         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”
Breakeven valley
         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’
“Cashflow
  is more
 important
 than your
  mother”
Cashflow overview
         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
Profit Vs Cashflow
          “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)
Building your startup
                 • CAPEX – to make     Three distinct phases:
Infrastructure
                   the business fly
                                      1. Build the infrastructure
                                      2. Build the business
                 • Cashflow – to         (customer benefit –
                   attract sufficient
  Business         customers             customer acquisition)
                                      3. Build the profit (owner
                 • Sustainability –      benefit – management,
                   to deliver returns    cost control)
    Profit        to stakeholders
Initial Cashflow budget
            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
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.

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Startup - Finance and funding 1

  • 1. Startup finance and funding - 1 Start your own business
  • 2. Startup capital  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)
  • 3. CAPEX  “$ 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.
  • 4. Intangible 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.
  • 5. CAPEX budget Startup Pty Ltd CAPEX budget  List the capital For the period leading to launch expenditure items Item Total Check Amount Month 1 Month 2 Month 3 sum required to launch your Tangible Equipment 10,000 10,000 - business. Fixtures and fittings Construction 20,000 15,000 7,500 10,000 5,000 10,000 2,500 - -  Estimate the total Total tangible 45,000 7,500 15,000 22,500 - expenditure required Intangble Statutory 5,000 2,500 2,500 - - (with assumptions) Prepayments Deposits 6,000 15,000 5,000 15,000 1,000 - -  Allocate the amounts Establishment Total intangible 2,500 28,500 22,500 2,500 2,500 3,500 - - over a monthly time CAPEX budget 73,500 30,000 17,500 26,000 - frame (no specific date) Assumptions:  Check sum - validate Detail here the assumptions that you have made in preparing the figures.
  • 6. Working Capital  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”
  • 7. Breakeven valley  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’
  • 8. “Cashflow is more important than your mother”
  • 9. Cashflow overview  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
  • 10. Profit Vs Cashflow  “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)
  • 11. Building your startup • CAPEX – to make  Three distinct phases: Infrastructure the business fly 1. Build the infrastructure 2. Build the business • Cashflow – to (customer benefit – attract sufficient Business customers customer acquisition) 3. Build the profit (owner • Sustainability – benefit – management, to deliver returns cost control) Profit to stakeholders
  • 12. Initial Cashflow budget  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
  • 13. 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.