Lesson 1, Topic 1
In Progress

1.3 Pre-operating costs are identified and calculated to an exact value.

ryanrori January 7, 2021

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Let us consider the business plans of Beauty and Suzy again. For the opening of their type of businesses, they would need the following current assets:

  • Stock: potatoes, chicken, oil, spices, dishes for packing the cooked food, cold drinks, fruit juice, vinegar, masala, etc.
  • Cash: They would need money to buy their first stock. This could be from their own savings or will have to come out of the loan. They will also need money to pay for expenses like pamphlets to advertise the opening of the shop. The transportation costs to fetch the stock, the labour cost to set up the fridge and to get everything else to work are even more easily forgotten than the electricity cost for the first month or two, telephone costs (including your own cellular phone) the cost of having somebody look after the children or getting a servant to maintain your house while you are working.

Pre –operating costs are the costs you have before opening your business. You also need to calculate your operating costs for your first two to three months to make sure that you have enough money to pay expenses until the time that your business starts making money.

Example: Pre-operating costs for a retail business

Expenses:Amount:
Starting stock 
Advertising 
Legal and accounting fees 
Water and Electricity Connection 
Telephone Connection 
Cash to pay for necessary items and to give change to customers 
Wages for labour doing cleaning, painting and other improvements 
Health Inspector’s inspection fee 
Total pre-operating costs 

(d) How much do you need to start your business?

After you have worked out your pre-operating and start-up costs, the next step is to calculate the following:

  • carefully work out all your financial requirements;
  • decide what loan amount you may be able to get;
  • start working out an action plan.

Example: Your financial requirements

 Amount
TOTAL PURCHASE PRICE OF FIXED ASSETS 
TOTAL MONTHLY EXPENSES 
TOTAL PRE-OPERATING COSTS 
TOTAL START-UP COSTS 
LESS YOUR OWN CONTRIBUTION 
TOTAL AMOUNT OF CAPITAL REQUIRED