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Business Management
David Merz | Founding Partner
Zurich, June 16, 2024
Starting a new business is an exciting venture, but it also requires careful financial planning and a clear understanding of startup costs. From securing initial funding to managing ongoing expenses, knowing how much money you need is crucial for the success of your startup. In this article, we explore the importance of understanding startup costs, the factors that influence them, and the various sources of funding available. By gaining insight into these areas, you’ll be better prepared to launch and sustain your startup effectively.
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Founding a startup company can be a cost-intensive process, and having a firm grasp over what to expect and how to prepare is key to the success of any new startup. Startup costs refer to all expenses a new business incurs to launch and operate until it becomes self-sustaining. These costs vary widely depending on the industry, business model, location, and scale. Knowing these costs is important for several reasons:
Easily calculate the costs of setting up your company here.
The cost of starting a new company can vary widely depending on numerous factors:
We have discussed the main factors affecting the cost of setting up a startup. Here we provide a summary of some of the key expenses to consider when setting up your own startup. This list is by no means exhaustive but provides a useful starting point for thinking about the various cost categories to include in your own budgeting process. We have grouped the costs into four broad categories:
To ensure your startup’s financial stability and capital adequacy from the outset, accurately calculating your costs is essential. This involves several important steps and methods:
There are various tools and strategies you can utilize to create a robust financial plan:
In constructing your startup’s detailed financial plan, two of the most important aspects are the projected income statement and balance sheet. These are essential for understanding the financial health of your startup and for determining your capital needs:
Break-even analysis determines the point at which total revenues equal total costs, indicating no net loss or gain. In other words, it predicts when a startup can expect to start generating profit. This is crucial for planning your financing requirements, as it allows you to more accurately project the total cost of starting and maintaining your business before break-even isreached and the business can start sustaining itself from profits.
In addition, calculating the break-even point helps in setting realistic sales goals and pricing strategies, and provides a clear metric for monitoring business performance against financial objectives.
There are various ways to finance your own startup. It’s important to examine the different options available and make an informed decision based on your specific situation and goals. For a more detailed exploration of funding sources for startups and how to find the right investors, read our blog on the topic here.
Bootstrapping refers to the self-funding approach, where you fund your startup using your own financial resources and the earnings from your business. This approach allows you to maintain complete control but may dampen your company’s growth due to the limited funds available.
You might consider borrowing money from your personal connections. This method is often less formal and more forgiving than traditional investment avenues. However, the risk is that if your business fails, it could strain your relationships. Despite these risks, this is frequently one of the earliest and sometimes only options for acquiring initial capital.
As a common strategy for raising substantial capital, you can offer shares of your company to investors like business angels or venture capitalists. This can provide you with significant funding and valuable business insights, but you’ll have to give up some control over your company.
You might qualify for business loans from banks or financial institutions, which you’ll need to repay with interest. This option allows you to retain full control and ownership of your company. However, it can be challenging to secure these loans without an established business record or significant collateral.
You can explore grants and subsidies from the government and other private funding organizations that support entrepreneurship and innovation without requiring repayment. In Switzerland, these are available at both the cantonal and federal levels, with a variety of financing options and support programs. It’s wise to contact cantonal economic development offices to see what’s available in your area. Federal support includes loan guarantees, funds for environmentally innovative projects, and more.
Besides the more traditional funding methods, you can consider alternative financing options. Convertible loans, for example, are loans that can be converted into equity during future financing rounds, offering a flexible solution. Another option is revenue-based financing, where repayment terms are tied to your company’s income.
Having a thorough understanding of how much capital your startup needs and the best ways to procure it is a valuable step towards building a financially robust business. However, that is only one part of the challenging journey, and a theoretical understanding is certainly not enough on its own. The actual sustainability and growth of your startup hinges on the way in which you then practically manage your capital. Here are some strategies to help you manage your finances wisely:
Managing your finances begins with creating and adhering to a detailed budget. Some key points to consider include:
Unfortunately, due to inefficient liquidity planning, many startups that are profitable on paper still fail because they are unable to meet their cash flow requirements. Effective cash flow management ensures that your startup always has enough liquidity to meet its obligations. Here are some sound practices to follow:
Deciding how to use your startup’s profits has a major impact on your business’ success and long-term growth. There are primarily three ways to utilize profits:
Determining how much capital you need for your startup and managing it efficiently takes a high level of expertise and a deep understanding of the financial landscape in Switzerland. Partnering with a professional consulting and accounting provider like Nexova can give you the support and expertise you need to navigate the various challenges. We offer comprehensive financial planning and accounting services tailored to startups and SMEs in Switzerland, including:
By partnering with Nexova, you can leverage our expertise and resources to navigate the complexities of startup finances and set your business on the path to early success. Contact us today to discover more about our tailored service offerings for your startup.
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