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When you go for a loan - how much do you ask for? Do you ask for just the start-up amount, or should you also include 6 months to a year of expenses? Should you figure up start-up and 6 months to a year operations costs to determine how much cash you need to come up with as equity, or do you just figure up start-up? This is where I get confused...
To find the amount of capital required I would
1 Calculate the amount needed to open the doors (start up costs)
2. Add to that the amount needed to maintain the business until it will support itself from the revenue.
3. Add 3-6 months expenses as a safety margin.
If you are able to borrow that amount and are comfortable with the debt, then move ahead. If not then you will need to consider other ways to acquire the capital you need.
When we work with client`s on this, we start with some assumptions - which are based upon some foundation of facts.
For example, the average conversion rate for a web site is around 1/2% to 2%
If one intends to use something outside that range- one should have a strong reason.
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