Initial capital

The initial capital is the fund of money necessary for a company to start its operations. With these resources, you will be able to acquire the assets and carry out all the mandatory procedures to start your activity.

Initial capital

In other words, the initial capital is the one with which the equipment and facilities necessary for the company to develop its product or service are acquired. In addition, the firm must obtain the corresponding licenses or permits.

The initial capital can have two types of sources, the own capital of the shareholders or the funds of third parties. The latter can be captured by applying for a bank loan, issuing bonds, with government grants, receiving support from angel investors, or even resorting to more modern tools such as crowdfunding. The latter consists of using the capital of many people who have made small contributions.

Types of initial capital

The initial capital can be of two types:

  • Initial investment: Corresponds to the machines, equipment, establishments, licenses and other requirements that we mentioned in the first paragraphs of this article. Entrepreneurs must plan such investments by developing a budget and looking for the most efficient options. It may be, for example, that it is less expensive for some workers to work from home and rent a small office, rather than rent a very large establishment.
  • Working capital: These are the funds that the company will require to keep its business going. That is, to be able to face short-term disbursements such as payment to suppliers and employees. To calculate working capital, current assets are subtracted from current liabilities.

Main initial capital expenditures

Focusing on the initial investment, its main requirements are:

  • Preliminary expenses: These are those prior to the start of operations of the company and correspond to market studies, visits to possible suppliers, advertising, among others.
  • Administrative expenses: Refers to the cost of licenses and permits necessary to open the company.
  • Expenditure on physical assets: The firm must acquire machinery and equipment. Even if it is a service company, certain assets, such as computers, are always required to start operating.

Likewise, if we refer to working capital, we can highlight these other main items:

  • Human expenses: Regular payments that must be made to company workers.
  • Suppliers: Payment for the inputs necessary to develop the production processes or the respective activity.
  • Administrative expenses: Refers to certain fixed costs so that the company can continue operating, such as the office rent and the expenses for water and electricity services.