4.4 Capital requirement calculation

In this study letter on business accounting and financial planning, you have dealt in detail with the topics of cost planning, cost accounting, calculation, pricing, financial planning and capital budgeting.

In the previous study letters, it was discussed how you can prove the marketability and market opportunities of your company. This is, of course, the most important factor for the success of a company, because without products that the market wants, you cannot achieve turnover and also profit. And that, after all, is the overriding goal of a business. But even the best business or product idea will disappear into oblivion in the long run if it is not based on a solid financial foundation.

It is therefore important to define very precisely what costs you will incur. If you know what your cost structure is, you will also know how many products you have to sell per month to cover the costs. And how many more products you need to sell to make a living.

Closely connected to this is the calculation of your products. What price do you have to charge to cover your costs? And are the customers willing to pay the calculated price? It gets complicated when you have many different products. Then you have to determine which product causes which costs and what price it must have.

Within the framework of financial planning, you must justify where the money for your business will come from and how you want to use it. Do you have equity capital that you want to put into the business? Do you need to take out a loan? How much capital do you need to cover? You probably won't be able to get around a loan. The decisive factor here is that you use the money in such a way that you can make the debt service, i.e. that you can pay your instalments and still have something left over at the end of the month. In order to make an assessment, it is of course also necessary to know how you are using the capital. A company car is all well and good, but you won't earn money with it alone. If you have built up a great business with nice salesrooms, but you have no money left to fill your shelves with goods, you have gained nothing.

How much money you need in total to set up and maintain the business is determined in the capital requirements calculation. What does it cost to set up the business, how much money do you need for goods and what are the running costs for rent, etc. are the relevant questions. From this, the total capital requirement must be determined.