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Capital requirements

General information

Setting up a business can lead to some unexpected initial costs. To keep your business liquid in this initial phase and make sure it remains on a stable footing, you need to know exactly what your capital requirements are.

Capital requirements for investments

Investments made in the process of setting up a company are generally investments in fixed assets, such as land, buildings, machinery, vehicles and office equipment. When calculating your capital requirements, you also need to take various additional expenses, such as Real Estate Transfer Tax (Grunderwerbsteuer), notarial and other fees, and the cost of raising capital, into account. You should also factor in a cash reserve of roughly ten per cent.

Capital requirements for goods and materials

If your business is producing goods, you should calculate the amount of materials you will need to achieve your target annual turnover. This figure needs to include the costs of storing the materials concerned. If your business is a retail business. you also need to work out the value of the equipment you will need in your retail premises. To determine your capital requirements, you will need to consider both the purchase price of the goods/equipment when they are sourced from the supplier and the value of the stock you need to keep as inventory.

Recurring capital requirements

Particularly when a business is just getting started, running costs can often exceed revenue. This usually depends on whether it is the norm in your industry to pay for goods and services in arrears. When calculating how much capital you need to cover your running costs, you need to consider the following factors:

  • Outstanding debts
  • Staffing costs
  • Rental or leasing costs
  • Office and administration expenses
  • Energy costs
  • Vehicle expenses
  • Interest
  • Any withdrawals you have to make from your business accounts for personal purposes, etc.

Tip

It is a good idea to make sure you have a sufficient reserve of cash, and to plan for the unexpected. You can reduce your operating expenses by billing customers promptly, storing your stock sensibly, keeping a close eye on payments and following a set procedure for issuing late payment reminders.

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Last update: 18 July 2022

Responsible for the content: Federal Ministry of Labour and Economy