Level 10 · Part 1
Startup capital and working capital
One pays for what you set up. The other pays for the days between spending and being paid.
Two kinds of money are needed to run a small business. Mixing them up is a common reason for trouble.
| Kind | What it pays for | Examples |
|---|---|---|
| Startup capital | Things you set up once and use for a long time | Equipment, a drying rack, a small building, registration, first stock of packaging |
| Working capital | Day-to-day costs while you wait to be paid | Raw materials, labour, transport, fuel, packaging, rent, phone, fees |
Many small businesses think only of startup capital. Then they buy equipment, run out of cash and cannot buy the next batch of raw material. Working capital needs to cover the whole cycle from buying to being paid, and a little extra for delays.
Start small and prove it
A small trial with borrowed or shared equipment can show whether people buy and whether your costs are right, before you spend on your own equipment.
Exercise 10.1 · List the capital I need
- List the one-off items you need to start. Write a cost for each from a real quote or visit.
- List the running costs for one full cycle, from buying materials to receiving payment.
- Write how many days pass between spending money and being paid.
- Mark the two items you are least sure about and how you will check them.
Background reading for this part:
- Start and Improve Your Business (SIYB) — International Labour Organization (ILO)
- RuralInvest: Fostering Access to Finance for Small-scale Entrepreneurs — Food and Agriculture Organization of the United Nations (FAO)