new business module

102
BUSINESS SKILLS
Once entrepreneurs have assessed the financial viability of
their business idea, they must determine how much capital
they need to procure the equipment and materials needed to
operate the business, i.e. they need to determine their capital
and cash needs. One way to do this is to conduct an income
and expenditure analysis. This module concentrates on these
financing questions. It discusses investment and working
capital needs and shows how they influence cash flow.
Session 1: Capital needs
Entrepreneurs starting a business face plenty of expenditures
before they can generate any income. To be able to start the
business, they need capital to cover initial expenses. They may
have to procure equipment and materials, rent business facilities,
pay salaries, and so forth. They must bridge the gap
between these initial expenses and the moment the business
starts to generate sufficient income to cover its operational
costs. 16
1.1 Capital investment
One-time costs are things entrepreneurs spend money on to
get the business going but are usually not recurring. Such costs
include:
• licences and permits
• production equipment
• decorating costs
• base inventory
• training.
These expenditures can be seen as investments on which
entrepreneurs expect financial returns in the near future. The
extent of these expenditures depends on the type of activity.
A contract worker may only need a few tools to start a business,
but a carpenter needs a workshop, electricity, equipment,
wood and other things to start production.
16 See also CISP (2011) and IFRC (2001).