Capital Requirements

In the start-up phase of an enterprise high costs can arise unexpectedly. In order to secure the liquidity for a start-up and to maintain an on-going enterprise, it is necessary to determine the capital requirements with great care.

A checklistGerman text and tipsGerman text for planning capital requirements can be found on the pages of the Business Start-up Service of the Austrian Federal Economic Chambers [Gründer-Service der Wirtschaftskammern Österreichs - WKO].

Capital Requirements for Investments
When establishing a business, the primary investments are those that go into the fixed assets (for example real property, buildings, machines, vehicles, and office equipment). In addition to the direct costs, the capital requirements must include additional expenses, such as taxes on real estate transactions, legal fees, and fees and costs related to the procurement of capital. Furthermore, a reserve of approximately ten per cent should be added.

Capital Requirements for Inventory and Raw Materials Storage
In manufacturing enterprises you should determine the material consumption needed for the annual turnover expected. The annual storage costs of raw materials must not be overlooked. In the case of retail businesses, it is important to determine the cost of fitting out the shop. The cost for the necessary inventory can be calculated by the suppliers' wholesale prices.

Day-to-Day Capital Requirements
Especially during the initial phase of a new business, the running costs can often exceed the income. This depends in part on whether payment for goods and services is made immediately, or whether in a particular business sector payments are made on fixed dates. The following are to be considered in determining the needed operating funds:

  • Accounts receivable
  • Personnel costs
  • Rent or lease expenses
  • Office and administrative expenses
  • Energy costs
  • Vehicle costs
  • Interest
  • Necessary private withdrawals, etc.

Info TIP

Plan a sufficient reserve. Try to think what might be unforeseen. Reduce your operating fund needs by current financial accounting, keeping reasonable inventories, monitoring payments closely, and by orderly reminders.

Obtaining Capital

After determining the capital requirements, it should be calculated how much of them can be supplied. There is no general rule on how much capital should be brought from one's own funds. This is strongly business dependent.

A detailed list of available cash, savings accounts, and assets should be made which can be brought to the business. In order to increase the equity quota needed for the enterprise, a partner might be taken on, someone who will co-invest and work with you. Another possibility is a silent partner, someone who participates only via a cash investment.


Do not forget the fact that business partners also participate in the profits of the enterprise, and be sure to clarify ahead of time the questions of liability in case of a loss.

The difference between your calculated capital requirements and equity must be supplied by outside capital.

Further information on financing with equityGerman text can be found on the pages of the Business Start-up Service of the Austrian Federal Economic Chambers [Gründer-Service der Wirtschaftskammern Österreichs - WKÖ].

Outside Capital
Outside capital is obtained primarily by credits and loans. It is useful to differentiate among the following:

Investment Loans [Investitionskredit]
Investment loans serve for financing fixed assets (for example real estate, buildings, machines, vehicles, office furniture). These loans are granted on a long-term basis, which means they typically have terms of four to twenty years.

Annuity-type loans have the advantage that the (monthly) payment amount remains the same over the term, so the loan expenses in the first years are lower than in the case of instalment loans. This makes it easier to deal with any first-time production difficulties.

With instalment-type loans the amount of the repayment and interest which you must pay per year is higher in the first years than with an annuity loan, but then, however, the payments regularly decrease.

Info TIP

Never judge the costs of a loan exclusively by the interest rate! In order to be able to calculate the actual costs of a loan correctly, you need exact information about:
  • Interest rate,
  • Term of the loan,
  • Number of instalments and their due dates,
  • Additional expenses of the loan, fees and handling charges,
  • The way the interest is computed (date on which the rate of interest is set),
  • The way the repayment is computed (the time at which the loan is paid off and the debt retired).

Check to see whether you can take advantage of a promotional loan.


Leasing is a frequent financing alternative. A lease contract allows capital goods to be rented and bought – after a certain period of time – according to an agreed upon residual value (lease-to-buy plan).

One advantage of leasing is that it preserves your equity, which means the total investment amount does not have to be paid at once. You can shape the repayments flexibly before the contract terminates.

Disadvantages of leasing are:

  • Once the final lease contract is signed it cannot be changed.
  • Changes in interest rates change the lease instalment payments.
  • A premature dissolution of the lease contract or the late payment of an instalment can lead to higher cost burdens than from financing with a loan.

Confer in each case with a leasing expert (for example: financial trustee, management consultant).

Bank Overdraft Loans [Kontokorrentkredit]
Bank overdraft loans serve on-going business and commercial transactions. A credit limit by a bank makes it possible for you to control business operating transactions. You are free to decide the loan amount up to the agreed upon credit limit without formalities. Interest is charged only for the amount of the loan actually used. However, this kind of flexible credit results in additional expenses and fees, so bank overdrafts should only be used for short-term financing needs.

Discuss details with your bank and compare the different terms and conditions.

Credit Granted by Suppliers [Lieferantenkredit]
Credit granted by suppliers is the most expensive of all loans. This is often not noticeable at first (sight). It is granted informally and results from the case when payment for goods is not made immediately upon receipt, but only after a certain time period (for example the supplier allows payment to be made in 30 days).

The sentence "payable within ten days at two per cent discount or within 30 days without discount (net)" on an invoice means that you may take two per cent off the invoiced amount within the first ten days. That corresponds to an annual interest rate of 36 per cent and should be taken, if solvency permits, even if it means using your bank overdraft provisions.

Further Information

  • You have the possibility to secure subsidiesGerman text offered by the Austria Wirtschaftsservice GmbH (aws).
  • The Book For The Self-Employed [Selbstständigenbuch] of the Federal Ministry of Finance answers basic questions concerning tax issues and is a tax guide for newly established enterprises.
  • Further detailed information concerning financing and subsidies can be found on the web site of the Business Start-up Service [Gründer-Service] of the Austrian Federal Economic Chamber.
Last update: 01.01.2018
Approved by: Federal Ministry of Finance
Transparente Grafik zwecks Webanalyse