What Is Start-up Capital?: Bookkeeping Basics

Tuesday, 9 Nov 2021

A start-up is a new venture launched by an entrepreneur with a lot of aspirations and desires for success. All new businesses in Melbourne need funds to get established and become recognised entities. The money needed to set up the organisation and begin its initial operations is known as start-up capital.

Since the entity must be built from the ground up, it requires a bit more investment. From security deposit for the office lease to renovation of interiors and purchase of equipment, tons of expenditures are on the to-do list.

With so many responsibilities and very few people to shoulder them, most entrepreneurs rely on professional bookkeeper Melbourne to manage the funds and utilise them efficiently. Also, securing the funds can be a daunting task. Thus, the entrepreneurs need to know how to raise start-up capital, use it and understand its significance. Let us look at this information in detail.

What is Start-up Capital?

As the name suggests, start-up capital is the money needed to run a newly established business in Melbourne. It includes a variety of expenses, such as costs related to the lease, furniture, fixtures, fit-out, utilities, licenses, permits, equipment, staff, training, stock, salaries, and payments to suppliers. It is needed until the business reaches breakeven and starts generating profits.

The funding can be sourced from financial institutions, banks, moneylenders, angel investors and venture capitalists. However, to get the funding, the entrepreneur needs to create a realistic business plan that seems viable and profitable for investment. Expert bookkeepers can help in preparing elaborate financial projections that are practical and achievable.

Putting money in a start-up is risky because most businesses fail within the first five years of their establishment. Thus, banks and moneylenders need to be sure about the capability of the entrepreneur and the feasibility of the business idea.   

The large sum needed to take off is also known as start-up funding. It is different from seed capital because seed funding is required at the time of planning, which begins before the start-up takes shape. The seed amount is used for market research in Melbourne and other data accumulation and analysis while testing the business idea.  

Types of Available Start-up Capital?

  • Owner’s Savings

If the entrepreneur has sufficient capital to start a business in Melbourne or he can arrange for it from family and friends, he does not have to seek a loan. However, the downside of this option is that you lose all your savings if the business fails, and you strain your relationship with family and friends who lent you money.

When the owner uses his own funds without any support, it is known as bootstrapping. For example, the Melbourne-based start-up Checkbox operated on the owner’s fund for the first two years until it received angel investment.

  • Government Grant Funding

Many aspiring entrepreneurs are not aware of this funding, but the government also provides grants and tax incentive rebates to businesses in Melbourne. Bookkeepers have all the details about these grants and funds and can help in obtaining them.

They are available both at the federal level and state level but applying to the latter is more fruitful because they are less competitive. LaunchVic is one such agency set up by the Victorian Government to aid start-ups and small businesses.

  • Bank Loans

Entrepreneurs can get funding from many platforms. The most common one among them is applying for a small business loan in Melbourne. You can ask your bookkeeper to find a loan with a shorter term and lower interest rate. However, the drawback of this funding is that you must start paying back from the moment you get the loan along with interest.

Also, you need to have a good credit score to get the loan. In addition, you will be in debt even without generating profits, so you must be cautious about the utilisation of the fund.  

  • Equity Crowdfunding

A relatively new way of securing a small amount of funding from many people. It is like raising funds for a project or a cause. It is done online, and the entrepreneur offers equity to the lenders in return.

However, taking this route entails compliance with more regulations that are developed to protect the rights of the investors. Your bookkeeper can keep track of the regulations if you choose this path.

  • Venture Capital and Angel Investors

If you need a big investment quickly, you need to ask your bookkeeper to contact angel investors or get venture capital that can help in starting the business and fuelling its growth. The investors get equity or a stake in the business in exchange for the funding.

Angel investors are high-net-worth individuals residing in Melbourne who are ready to invest in a promising start-up for equity or partial ownership. On the other hand, venture capital is a type of private equity, which investors offer to start-ups that showcase a huge growth potential.

How to Secure Start-Up Capital?

The entrepreneur must seek the advice of the bookkeeper to prepare the budget and financial forecasting for the start-up. It is the most valuable document besides the business plan. Your bookkeeper can help you with funds from any of the sources mentioned above.

The entrepreneur should be prepared to pay the cost of capital, such as equity or interest, when acquiring these funds. They should have a plan of repayment on paper so that the lender does not hesitate in allocating the funds.

Conclusion

If you have been planning to start a business, you need to understand start-up capital and its types. You must hire a bookkeeper in Melbourne to help you find the funds and use them in the right way.            

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