Steps to Growth Capital Self-Study GuideStep 1

1.6 Determine Fixed Assets and Other Costs

On the previous page, you learned about calculating working capital requirements. To establish your financial needs, you need to consider three other important components: fixed assets, marketing costs and a financial cushion. Remember the equation:

Fixed Assets

Fixed assets, or capital assets include:

• land
• buildings
• machinery and equipment used to make a product, provide a service or sell, store or deliver goods (e.g. office furniture, business machines, computers, display cases, store fixtures).

To determine fixed assets, you compare the actual amount spent on these items with a forecasted amount. For example, if your company's actual gross fixed assets are $1,500,000 and your forecasted gross fixed assets are $2,600,000, then this represents a $1,100,000 increment. The figure of $1,100,000 would be entered into your calculation of financial needs.

In your investment proposal, you'll have to list and cost your fixed assets accurately, preferably based on supplier quotations. There are several benefits (beyond satisfying potential investors) in identifying fixed assets precisely:

• to help maintain control over depreciable assets;
• for insurance purposes;
• so the company's reserve for replacement of machinery and equipment doesn't get too low;
• to help create a cost budget.

For a closer look at how to present fixed assets, see An Effective Way of Listing Fixed Assets.

Marketing Costs and Financial Cushion

You'll also have to project marketing costs such as advertising and promotional programs.

And finally, you need to consider a financial cushion. Although you may have been careful in estimating working capital, fixed assets and marketing costs, these estimates are not always 100% correct. Anything can happen! There is a chance that some of your estimates will be higher or lower. Business managers typically determine best (optimistic) and worst (pessimistic) scenarios to identify the level of financial cushion that may be needed if their base case estimates are not realized. A financial cushion reduces the element of surprise and informs potential investors about the "possible" financial increments.

Try It Out

Now that you've learned about the four key areas to consider when determining your financial needs, try estimating your own needs.

Working Capital

to pay for day-to-day operating costs;

 

Fixed Assets

for land, buildings, equipment, etc., you need for growth;

 

Marketing Costs

for advertising, promotional programs, etc.; and

 

Financial Cushion

a precaution for possible changes in business circumstances.

Your Company's Requirements for Growth
Working Capital	$
Fixed Assets	$
Marketing Costs	$
Financial Cushion	$
Total	$

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