What Is Start-Up Capital?
Start-up capital is money a business needs to start-up, grow, and get on its feet. Depending upon the nature of the business, it can be raised in several ways.
How Is Start-Up Capital Different From Operating Capital?
In contrast to operating capital, which is needed for day-to-day operations, startup capital is used to finance the initial launch of a business and is typically required before generating revenue.
How To Calculate The Start-Up Capital?
Different businesses require different amounts of startup capital. A small business, such as a restaurant or retail shop, may need only a few thousand dollars to get started. A young technology company, however, might need tens of millions of dollars to get off the ground. The cost of starting a business depends on various factors: the type of business, the cost of running it and the amount of funding needed to launch it successfully. The cost is also affected by the entrepreneur’s business plan and personal financial goals. Here are some of the things you need to take into account while calculating your startup capital:
- Renting or leasing space. While calculating this expense you should include TDS on rent. To calculate the correct amount of tax you can use a TDS rates chart. Click here to learn more.
- Furnishing the office- This should include all the essential furniture needed to start the functioning of the office
- Paying bills or utilities- In this case, improper planning may lead to a lot of monetary problems down the road
- Buying equipment and supplies- this is probably the most important aspect of start-up capital.
- Stocking inventory- to be efficient at this you should educate yourself on inventory management.
- Hiring professional services (accountant or lawyer)- although these peripheral services may not seem important to a young start-up these simplify a lot of things in the day to day operations.
How To Get Start-Up Capital?
Start-up capital is the money a business needs to get started and it can be generated from various sources:
- It can come from the business owner’s funds. The biggest advantage to this approach is that it doesn’t involve any interest costs, which means the money can be used in other ways, like hiring employees or buying equipment. This capital comes with some downsides, however. For example, the owners may eventually want to sell the company or move on to a new project, and selling a portion of the company means losing some ownership in it.
- It can be borrowed from another source, such as a bank, online lending platform, or venture capitalist. The advantage here is that there are no ownership stakes attached—the lender gets their money back before anyone else does—but there are some downsides as well. The cost of this loan and paying it back with interest might affect the operating capital of the company
- Because financing is often difficult for new businesses, many startup companies seek out investors who will buy a stake in the business in exchange for monetary support. This type of funding is known as equity financing. It allows businesses to secure funding without having to give up part ownership of the company. The biggest advantage here is that these investors are usually more willing than owners to take a percentage stake in the company in exchange for their money. However, they might also expect a say in how they run the company, which can mean bad news for business owners who prefer more control.