Business Plan Financials
Finanicing and Cost Management
Written by Samuel Muriithi for Gaebler Ventures
Sound financial and cost management practices are crucial to the successful running of any business big or small. What do these practices involve and of what significance are they to a business that is just starting out?
In start-up business financing there is a need to secure start-up capital i.e. the one-time funds that are needed to initiate business operations.
It is the type of business that you have in mind which determines the level of financing that will be required. Start-up business financing is used to take care of the usual start-up expenses like registration and legal costs, and to secure short term assets like cash, labor, raw materials, and assorted operating expenses. In this latter role these funds are also referred to as the working capital.
So as to obtain start-up business financing from various institutions you have to specify the needs that these monies will help take care of as well as how you intend to repay the same i.e. the loan. Nowadays it will be necessary to furnish these institutions with 3-5 year forecasts showing how these funds will be used and the future value your investment alongside debt repayment.
The following pointers will be of help in making prudent start-up business financing decisions:
- Having a clear understanding of what is to be financed – is it the start-up operations or ongoing operations?
- Identifying the source of the funds
- A prior determination of what financing source combination will be most appropriate
- Understanding what the cost of this financing will be
Further, the start-up business financing decisions must take into account the risk-proneness of the proposed business, the urgency of the need, the nature of the industry, the nature of the business i.e. whether it is cyclical or seasonal, and the strength of the management team.
Start-up business cost management has everything to do with understanding the costs you will incur in running the business venture. Understanding this aspect will help you make an accurate identification of the start-up finances you need as well as other allied expenses. You will also be in a more informed position to develop a viable pricing strategy, make accurate inventory valuations, identify areas where costs can be saved, and overall to make sound decisions.
The elements of start-up business cost management moving forward include labor, materials, and assorted expenses. These business costs can also be viewed as being either fixed or variable. The former don't change with levels of production while the latter do. As part of business cost management it is worth knowing what cost of goods sold and operating costs are. Cost of goods sold are those direct costs that are incurred in acquiring the goods/services required for production. Operating costs, also known as general and administrative expenses are those costs that are incurred in running the business including salaries, advertising, insurance, interest, rent, depreciation, utilities etc.
Samuel Muriithi is a business owner in Nairobi, Kenya. He has extensive international business experience in the United States and India.
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