Start-up Funding

Chapter 6: Describe Your Company - Page 6.8

Start-up Funding

Your business plan isn't complete with start-up costs unless it also includes planned start-up funding. You need to explain where you get the money to pay for start-up expenses and start-up assets. Generally accepted accounting (financial) principles (GAAP) require that the spending planned is financed by either debt or investment.

In the Start-Up Funding table example on the next page, the "Additional Investment Requirement" amount (also known as the "left to finance" amount) shows up as a positive number only when you haven't provided enough funding to finance both expenses and assets. If it shows as a zero, you may have exactly the right amount, or too much.

You can tell that you have not accounted for all your incoming financing by looking at the "Loss at Start-up" value. That should be the same number as Total Start-up Expenses (except negative) shown in the Start-up Requirements table. If it is more negative than start-up expenses are positive, then you have brought in funds that haven't been accounted for. You can fix that by adding more money into your starting cash to account for the additional financing.

Investment is money that you or your investors sink into the business for good. You don't expect to get it back. Borrowing is money loaned to the business — including loans as simple as purchases with credit cards and unpaid bills, called unpaid expenses. Loans can be unpaid expenses, short-term loans, or long-term loans. You need to invest and borrow enough money to equal the start-up expenses and start-up assets combined.

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