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Required Investment for Your Business

Your capital spending plan includes all the things you have to buy before your business begins bringing in sales revenue, including opening inventory, fixtures and equipment, business licenses, deposits for the building lease, and whatever else you need.

Open a computer file or take out a clean sheet of paper and write “CAPITAL SPENDING PLAN” at the top. Now, make a list of all the things you’ll have to buy before you open. This will enable you to make a good estimate of the cash you need to open your doors. The list shown below sets out many common items businesses need to purchase before they are ready to open.

Some of the items you’ll buy will be considered capital items, which depreciate over their useful lives. All preopening expenses represent your capital investment in the business, regardless of whether they are treated as capital items or expense items. If you have doubts about whether an item can be depreciated, ask your accountant.

Now assign specific dollar amounts to each item on this list. If you’re unsure about the cost of an item, ask the person from whom you’ll buy the item for an estimate or a quote. Try for plus or minus 10%. Remember that you’re trying for an accurate estimate here, so use the numbers you think are right. Most experienced.

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Final words

Growth, too, can create problems. Many businesses that grow quickly suffer severe cash flow shortages because money from sales does not come in fast enough to cover the investment needed to expand. If you find yourself in this situation, you will need to reduce your growth rate or find extra sources of money. (See the cash flow discussion below.) So, let’s put a close-up lens on our camera and focus on cash forecasting. Here again, it’s necessary to get out your calculator or computer and play with some numbers.

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