Novus Business and IT Training Program

Startup Capital and Financing

Objective: To understand how to estimate the amount of capital needed to start your business and what types of financing are most common for new businesses.

2Novus Business and IT Training Program

Startup Capital

• Startup Capital = Resources Needed to Start Your Business

• One-Time Costs vs. Recurring Costs• Financing Options: Debt vs. Equity

3Novus Business and IT Training Program

One-Time Costs

• What do you need to open your business?– Example: Renovated building– Example: Machinery and equipment– Example: A delivery truck

• Current Needs • Future Needs Based On Projected

Growth

4Novus Business and IT Training Program

Recurring Costs

• What monthly, quarterly, or annual expenses will your business incur?– Example: Rent– Example: Wages and Salaries

• When will the business’s profits be greater than the recurring costs?

5Novus Business and IT Training Program

Financing Options

• One-Time Costs + Recurring Costs (until business is profitable) = Startup Capital

• Be conservative • Two Main Sources of Capital– Debt– Equity

6Novus Business and IT Training Program

What is Debt?

• Money you have to pay back• Key Considerations:– Amount (“Principal”)– Payback Period– Interest Rate

7Novus Business and IT Training Program

Benefits and Risks of Debt

• Benefits:– Simplicity– Interest payments may have tax

benefits–No loss of control in your business– Debt is “cheaper” than Equity

• Risks:Bankruptcy = Loss of Your Business

8Novus Business and IT Training Program

What is Equity?

• Capital in exchange for an ownership stake in your business

• Key Considerations:– Control given to outsiders– Investors have right to some or all of

the business’s profits

9Novus Business and IT Training Program

Benefits and Risks of Equity

• Benefits:–No repayment– Reduced threat of bankruptcy– Strategic advice and support of

investors

• Risks:– Loss of control over business’s strategy

and future profits

10Novus Business and IT Training Program

Summary: Debt vs. EquityDebt Equity

Advantages• Straightforward• Potential tax

benefits• No loss of control

• Highly negotiable• No repayment terms• Valuable source of advice

Disadvantages

• Requires repayment• Threat of bankruptcy

• Potential loss of strategic control• Potential loss of future profits

11Novus Business and IT Training Program

Capital Planning

• Same principles apply• Retained Earnings = Accumulated

Profits of Business• Benefits of Retained Earnings:– Reduced need for additional debt or

equity– Improved chance for business

sustainability – Flexibility