The calculations of capital requirements and sources of financing helps you determine the necessary costs and investments prior to initiating your business activities. It also generates a view of the required investments for the beginning stage.
In its most simple form, the capital requirement section describes, what acquisitions need to be made in the very first phase, so that company activities can start. IAlso the early period of activities, when sales are not sufficient to cover the costs which exist regardless, is described in the capital requirement section. Such costs include phone bills, salaries, rents, and the entrepreneur's income.
At the other side of the calculation, the capital sources are listed. These sources cover the needs of capital. A bank will use this calculation, for example, to determine how much loan funding you are applying for, and also how much additional funding is required or present. The calculation also illustrates the entrepreneur's monetary investments, and the value of existing tools and machinery (so called in kind property). The calculation helps balance, plan and estimate in euros the financial risks and needs involved with starting the business.
"The calculations help you to gain an understanding of the costs involved in your plan, and estimate your sales' break-even point"
Calculation of profitability
A profitability calculation helps visualise, what the sales target is for the company. This calculation can then be compared with a separate sales budget, which breaks down how much sales needs to be generated from each customer group. The profitability calculation does include the projection of sales, and for this reason it is simple to calculate. The profitability calculation examines the costs, which the business activities incur, regardless of sales. These costs are simply listed row by row, and finally added up. Next, the amount of time, that needs to be spent for running the business operations is allocated: for a boutique they are restricted by opening hours, for other businesses the entrepreneur decides the necessary work hours per week, per month and so forth.
The resulting calculation shows, how much sales needs to be generated with a given quantity of time and a given price level, in order to reach profitability. This figure can be compared with the sales forecast, or your estimation of how much sales volyme can be generated.
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