Startup How-Tos: Three steps to estimate startup capital
One of the key factors of starting a business is capital. A detailed budget provides clarity to the capital needed, rate of return and payback period which would benefit your business planning. Let’s follow the steps below to plan your budget!
1st step: list out carefully the items required for entering and operating a business in the target industry, including company registration, rental cost of the store or office, interior renovation, operation facilities, raw materials, staff and liquidity etc.
2nd step: estimate the cost and price of the required items. You may refer to the value of relevant consultants and persons with experience, or the relevant Market and Industry Profiles published by Hong Kong Trade Development Council (HKTDC).
3rd step: You may utilise the Budget Analysis Worksheet for Starting up Business provided by Support and Consultation Centre for SMEs (SUCCESS) to estimate the initial capital required, the relation between turnover and profitability, payback period, assets and liabilities; and factors that may affect financial position. (e.g. turnover, rent, profit margin, expenditures, inventory and credit period, etc.)
Calculation of return and payback period
Usually the rate of return and payback period will be calculated before investing for a business. Simply speaking, you may calculate with the net profit per month:
If net profit per month = $20,000
Total investment = $300,000
Rate of return = net profit x 12 / total investment
= $20,000 x 12/300,000
Payback period = 1/80%
= 1.25 years
Note: The net profit of an enterprise may generally be lower during opening period and reach the expected profit after a period of time. Thus the actual payback period may be longer than the calculation result.
There are a wide variety of sources of financing such as personal savings, capitalising and loans. You may look up the funding scheme that suits you best with our Funding Schemes Finder, or check out more information on funding from Innovation, Technology and Industry Bureau, Brand Development and Promotion of the Trade and Industry Department, and the Hong Kong Productivity Council.
“Startup How-tos” is an introductory guidebook written for entrepreneurship newbies, providing startup tips and related public services information.