Once again, I will use Sue Hansen’s SportsTees business to illustrate the process of calculating the required start–up funds. The start–up funds should include the money young entrepreneurs will need to open their businesses and keep it open until they start getting paid for their product or service. Let’s take a look at Sue’s expenses again:
|
SportsTee's Initial Capital Investment |
||
| 1. | White T-Shirts | $30.00 per dozen |
| 2. | Fabric Paints | $10.00 for painting 10 shirts |
| 3. | Brushes | $15 for all the shirts |
| 4. | Blotter | $8.00 every 20 shirts |
| 5. | 2 Buckets | $4.00 for all shirts |
| 6. | Cleaning fluid for brushes | $8.00 for every 20 shirts |
| 7. | Overalls for painting the shirts | $20.00 for all shirts |
| 8. | Exhaust fan for fumes | $40.00 for all shirts |
| 9. | Garage rental | $20.00 for all shirts |
| 10. | Advertising | $20.00 for flyers for all shirts |
TOTAL COST = |
$175 | |
Sue had to buy a lot of supplies and equipment to open up her business. Every single item on this list had to be paid for in advance. Sue had to come up with $175 before she could open up for business. She was lucky enough to have put enough money away in her savings account to finance her business.
Unless young entrepreneurs have money saved for their new businesses, they will have to approach an investor for start–up money. If they do borrow money from investors, they will have to pay interest. If Sue had borrowed, say, $175 from her parents at an interest rate of 10%, she would have had to pay them $17.50 per year. That would add about 9 cents per item ($17.50/200) to the expenses associated with producing each of the 200 SportsTees. In addition, she would have to pay back the principal based on a schedule. If her parents wanted her to pay back the loan at the end of one year, that money would have to come out of the revenue she would make during the year.
