Capital is the most important fuel a business needs to grow; A lack of optimum capital obstructs supply chain management and hinders a company’s day-to-day activities. Needless to say, enterprises must maintain a steady flow of working capital.
Business Types.
There are several types of businesses based on size, specifically staff and revenue.
1). Small scale business: A small scale business involves fewer capital investments to establish. It is a business that requires less labor force and less cost of operations. Small businesses can include businesses with fewer than 50 employees.
2). Medium scale business: A medium scale business is one with between 50 and 250 employees.
3). Large-scale business: A large-scale business has hierarchical management. They have more employees than small-scale and medium-scale businesses. They have a great number of business operators daily so they need more labor force and they require a large sum for operation costs and maintenance.
How much is needed for your business?
This is completely dependent on the type of business you decide to run. Starting a business can be tedious because you need to raise capital and have foolproof business plans.
There are certain things that businesses generally require to start. Things that are essential to the growth of every business.
1)Equipment: Every business requires equipment to start. It can be what is readily available or what needs to be bought depending on what is needed for that particular business.
2)Marketing: Marketing materials like business cards, banners, and flyers are needed for advertising.
3)Website: This is very important for every business so that every potential customer can look the business up. An online presence gives the business more credibility.
4)Office supplies: Some businesses will require office furniture if there is a physical location and every business needs supplies such as stationeries and computers.
5)Utilities: There must be a provision for things like the Internet, water, electricity bills, and phone bills.
6)Payroll.
Small-scale businesses will need the least amount of the three types listed, this business requires about #50,000- #500,000 to establish. A medium-scale business needs about #500,000- #2,000,000 to set up, while a large scale business will need at least #10,000,000 for a decent start.
Your reason for starting a business shouldn't be to make a profit immediately, you might hear this a lot but it is absolutely true. It takes time for a business to start yielding profit and so you need to have the necessary resources for your business depending on what this business entails.
Not everyone that starts a business will be able to provide the necessary resources needed for the business especially Small and Medium Enterprises(SMEs) which means that there might be a need to apply for loans or grants as the case may be but this can be hard for them due to the lack of collateral to obtain loans needed to grow their businesses.
Having the initial resources needed to start a business is not enough as every business needs working capital.
What is working capital?
Working capital is how much is needed to keep a business afloat which includes operations costs, maintenance, basic supplies, advertising, etc. The specific amount a business needs for working capital varies and so it is dependent on the type of business you're running and how fast you would like your business to grow.
Working capital is what you need to run day-to-day activities even before the business makes a profit so as not to run into loss and have a failed business.
A working capital shows the business' ability to cover the cost of its operations and pay short-term expenditures such as maintenance and salaries.
Working capital can be improved by cutting down on liabilities and increasing the business' assets.
Collecting receivables faster can help build assets for the business and this can be made easier with the use of invoice financing. The business should also be less dependent on debts.
A business' operating cycle (how fast there is a return on investment on goods and services) also determines how much working capital it needs because a business that has a quick return on investments will need less capital than a business that needs more time to produce and sell their goods and services.
Overall, a business that provides services will need far less working capital to operate, while a business looking to grow quickly will need a higher level of working capital.
Ways to get Business Funding
1)Savings
2)Personal loans: This involves borrowing from family and friends
3)Bank loans: This might be quite difficult for a small business to access because banks like to work with established companies.
4)Government grants
5)Crowdfunding: This involves asking large groups of people for money on particular websites that provide this service.