The Basics of a Start

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Jan 9, 2024

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The Basics of a Start-Up Antonio Rivera Jr Fin 317 Dr. Sadu Shetty 11/03/2023
Start-Up Needs When opening a business, it is important to ensure that you plan thoroughly. Ensure you plan for the start-up cost and know what financing you need. Financing can come from borrowing money from friends and family or using a credit card to pay the start-up cost. To start, I will break down my estimated start-up cost to know how much funds I need to start my business. These will be the estimates that I believe will help my business start and operate for the first three months of opening. Cash- $2,000.00 The cash for the start-up would be used to pay for shipping costs until a profit is earned. Equipment- $500.00 The equipment cost to start my business is low because until it becomes a larger operation, it is currently handmade by me. Rent for space to operate- $3,500.00. Rent is currently expensive and taking a physical location will be one of the most expensive parts. Labor- $0.00 To start the business, it will be a one-man operation until I can start pulling in a profit and then focus on expanding. Misc. (Petty Cash)- $4,000.00
At the start of my business, I would like my misc. funds to be double my cash in case I have any emergencies come up. Capital To obtain capital to start my venture, I would first like to ask my family and friends for funds. To start my business, I would like to try a bootstrapping method to open. If that fails to work, I will next have to take on debt to open my business. I would rather take debt on than give away any of my business. When working with investors, a business will often trade a percentage of its business in exchange for capital. As an entrepreneur, I would not give up any of my company for as long as possible. There are other options such as crowdfunding and angel investors, but both require time and attention. I would like to focus on the business. Funding a new venture is always one of the hardest parts but if you can obtain funding, it will enable you to start turning your vision into reality. Ratios The first ratio that I will use to measure my business performance is the current ratio. A current ratio is a liquidity ratio that indicates to investors and analysts how a company can optimize the current assets on its balance sheet to satisfy its current debt and other payables. It gauges a company's capacity to pay short-term obligations or those that are due within a year. A current ratio below the industry average may suggest a higher risk of distress or default; similarly, if a company has an extremely high current ratio compared to its peer group, it may suggest that management is not making the most use of its resources. Generally, a current ratio that aligns with the industry average or slightly higher is deemed acceptable (1). The reason I have selected this ratio is because after operating for a time it will tell me if my business is
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operating effectively. If my business can pay off short-term debt and still has money left over, it means that I am not using borrowed money to operate my business. The second ratio I have selected is the Gross Profit Margin. A company's gross profit margin is the amount of money it makes after deducting the cost of goods sold (COGS). In other words, it's the money left over after deducting operating expenses. This financial metric is often expressed as a percentage of sales and is also sometimes referred to as the gross margin ratio. Analysts use gross profit margins to evaluate a company's financial health. Sales and COGS can be found on an organization's income statement. A high gross profit margin is desirable and indicates a company is operating efficiently, while a low margin is evidence that areas need improvement. It is one of the key metrics analysts and investors watch as it helps them determine whether a company is financially healthy. Companies can also use it to see where to improve by cutting costs and/or improving sales (2). A high gross profit can indicate that a company is healthy which is why I choose this as my second ratio.
Sources 1.) Jason Fernando. March 25, 2023. Current Ratio. https://www.investopedia.com/terms/c/currentratio.asp . 2.) ANDREW BLOOMENTHAL. June 12, 2023. Gross Profit Margin. https://www.investopedia.com/terms/g/gross_profit_margin.asp#:~:text=Gross%20profit %20margin%20is%20the,as%20the%20gross%20margin%20ratio ..