Start-Up

SECTION

Investment
OBJECTIVES

 Describe start-up capital and explain how payback is

calculated
 Explain bootstrapping strategies

Entrepreneurship: Owning Your Future, 11th ed. © 2010 Pearson Higher Education, 1
Steve Mariotti Upper Saddle River, NJ 07458. • All Rights Reserved.
 Introductory Question
 Can you start a business without borrowing
money?

Entrepreneurship: Owning Your Future, 11th ed. © 2010 Pearson Higher Education, 2
Steve Mariotti Upper Saddle River, NJ 07458. • All Rights Reserved.
 Start-Up Investment
Start-up investment is the one-time sum required
to start a business and cover the start-up
costs/expenditures. Also known as "seed money" or
"start-up capital."
 Raising money for a business is called
financing.
Two Components

1. Start-up expenditures are those expenses

associated with opening a new business.
Entrepreneurship: Owning Your Future, 11th ed. © 2010 Pearson Higher Education, 3
Steve Mariotti Upper Saddle River, NJ 07458. • All Rights Reserved.
 Start-Up Expenditures
. The start-up expenditures for Caesar’s Smoothies
might look something like this:

Entrepreneurship: Owning Your Future, 11th ed. © 2010 Pearson Higher Education, 4
Steve Mariotti Upper Saddle River, NJ 07458. • All Rights Reserved.
 Start-Up Investment
2. Cash reserves are needed for an emergency fund
and a reserve for fixed expenses.
The emergency fund is the amount of money a
business should have available in the first three to
six months for the emergencies that often arise
when a company is just beginning.

Fixed expenses The reserve for fixed expenses is

maintained for the life of the business and is
used if the company should experience a
downturn in sales.
Entrepreneurship: Owning Your Future, 11th ed. © 2010 Pearson Higher Education, 5
Steve Mariotti Upper Saddle River, NJ 07458. • All Rights Reserved.
 Banking Documents
If you were going to the bank for financing, you
would usually include:

Entrepreneurship: Owning Your Future, 11th ed. © 2010 Pearson Higher Education, 6
Steve Mariotti Upper Saddle River, NJ 07458. • All Rights Reserved.
 In conclusion, the one-time sum Cesar would
need to start his business and cover his start-up
cost is 12,000.

Entrepreneurship: Owning Your Future, 11th ed. © 2010 Pearson Higher Education, 7
Steve Mariotti Upper Saddle River, NJ 07458. • All Rights Reserved.
 Payback
Payback is the amount of time, measured in months, that it
takes a business to earn enough in profit to cover the start-up
investment.

Start-Up Investment ÷ Net Profit per Month = Payback (in Months)

Entrepreneurship: Owning Your Future, 11th ed. © 2010 Pearson Higher Education, 8
Steve Mariotti Upper Saddle River, NJ 07458. • All Rights Reserved.
Entrepreneurship: Owning Your Future, 11th ed. © 2010 Pearson Higher Education, 9
Steve Mariotti Upper Saddle River, NJ 07458. • All Rights Reserved.