What kinds of start-up capital should I use for my business?

Launching a successful business requires ideas, unwavering commitment and start-up capital. Regarding the latter, you must first estimate the amount you need. Then you’ll need to gather the necessary capital from various sources. To do this, you must clearly evaluate the potential of your business. This raises many practical questions. Here are some answers, to help you move forward without delay.

What types of start-up finance are there?

 

Personal assets

Start-up capital comes from several sources. The first is the most familiar, as it involves your own resources. This form of capital is immediately available and requires no repayment plan or contract. Moreover, it shows potential investors that you are committed to driving your business forward.

The money you borrow from friends or family also forms part of your personal assets. As friends and family are often the first to find out about your projects and ideas, it’s logical that these funds constitute a source of personal capital. They have confidence in your projects, and you’re grateful for their support and trust. Establish clear agreements: is the money a gift or a loan? And if the latter, how will you repay it?

Ideally, between 20% and 40% of your start-up capital should come from personal funds. This allows you to demonstrate your commitment while limiting risks.

Third-party capital

In addition to your personal funds, there’s also third-party capital. This means money provided by investors. In exchange for their investment, they receive interest, a stake, or a presence on your company’s board of directors. Third-party capital can come from various sources:

• Investors who believe in your ideas and abilities and demonstrate their trust by providing you with capital.
• Banks willing to support you as an entrepreneur.
• Public authorities that can grant you subsidies.
• Venture capitalists who are willing to invest in businesses with higher risks and significant potential.
• Crowdfunding.

Starting up a business: how much does it cost?

Draw up a detailed picture of your business’s finances

It’s essential to evaluate the costs of launching your business, honestly and realistically. This is one of the most important parts of your business plan. A good understanding of the actual costs will give you peace of mind and allow you to forecast your profits more accurately. This makes all the difference when addressing potential investors. Moreover, your accountant will thank you: this will give them a better idea of the potential tax benefits your business may enjoy.

Start-up costs

Realising your dream project generates certain costs from day one. Initially, these are mostly one-time expenses, often related to the company’s image: business cards and logo, website, operational base, software licenses etc. Think carefully about which costs are really necessary in the short term. Avoid overloading a start-up with unnecessary bills.

Fixed costs

Your business will also bear longer-term fixed costs. These include the rent for commercial premises, operating expenses (electricity, water, gas, internet etc.), insurance, taxes, computer hardware and inventory. A significant portion of these expenses is tax-deductible. Some expenses are sporadic, while others are regular. By monitoring the pulse of your business, you’ll get a better understanding of its performance.

Working capital and cash

How much money does your business need for a financially trouble-free launch? The amount represents the start-up capital you need to begin operating. Don’t forget to make provisions for a cash reserve and money to fund your working capital. These are just as essential to your business operations as your premises and staff. They allow you to pay expenses while waiting for customers to settle their invoices, and to deal with unexpected events. Money circulates in your business like blood in the human body: it allows it to function and provides the necessary oxygen to all components of the business. Initially, sufficient room for manoeuvre is essential for you to get to work.

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How do you evaluate your revenue correctly?

Now that you have a clear idea of possible funding sources and expected costs, all you need to do is forecast your revenue. This will determine a significant portion of your start-up’s resources. Your revenue forecast will have a direct impact on how much you can spend. We’ll go through this thought process step by step to give you a good overview. The revenue forecast is based on expected sales. You can calculate it using the following formula: Forecast revenue = unit selling price x expected number of units sold. As with all aspects of the business, revenue is evaluated per financial year, so forecasts should be over periods of 12 months. There are three ways to make a valid revenue forecast.

1. The comparative method
2. The purchasing intentions method
3. Using apps

Ideally, you should combine all three methods for more accurate forecasts. By spending a bit more time, you could even develop multiple scenarios: optimistic, neutral, and pessimistic.

The comparative method

Looking at the world around us is the best way to understand ourselves. It’s the same for your business. Your competitors have followed a similar thought process regarding revenue forecasts and their strategies may not be very different from yours. You could therefore draw important lessons from them. You can find data related to your sector (industry reviews, sector statistics, etc.) in various places.

• From chambers of commerce: VOKA in Flanders, BECI in Brussels, CCI in Wallonia
• From the business court registry
• From your industry federation
• On the website of the Belgian central bank’s Central Balance Sheet Office
• In the register of the Banque-Carrefour des Entreprises
• On specialist websites (Kompass, Companyweb, Trends Top etc.)
• In the economic and financial press
• At your government “business counter”
• ...

The purchasing intentions method

You listen to your potential customers. You ask them about their preferences and usage habits. In short, you get to know your customers and their purchasing habits. You then estimate how frequently they will buy from you based on their responses. Multiply this number by their average spend, and you’ll have an approximate idea of your sales.

It’s best to apply an additional filter to the figures you obtain to take into account incomplete and inaccurate responses. Ideally, your customer mix will be diversified, so you will have to meet the various wishes, desires and needs of your potential customers. By doing this work, you’ll be able to approach your revenue forecasts with full knowledge of the facts.

Apps

Did you know that there are several apps that can do a significant portion of the work for you? HannaGo is one of them. You enter the figures from the two previous methods, and the application gives you a revenue forecast in the blink of an eye, according to three different scenarios: optimistic, realistic and pessimistic. HannaGo goes even further: is your project ready to be launched, or do you still need to do certain things beforehand? The app can give you an answer!