Calculating Financial Investment Required for your Startup

At every stage, a startup must calculate how much money is being spent and how much is required to carry on and grow the business. If we are not able to do this, we run the risk of running out of money, which can affect the startup in many ways.

To start off, we need to come up with some figures for our startup.

Current Burn & Metrics – What is the current amount we are spending (except marketing) to operate the business at the current level. This includes salaries, overheads and all expenses compulsory for the running of the venture. Also some important metrics such as customer acquisition cost need to be calculated.

Goal – We need to be clear what we wish to achieve with the funding we seek. Be it reaching out to a certain number of customers or expanding to different geographies or launching a new product, we need to be clear about what our goal is.

Growth Money Required – To calculate this, we need to use the current metrics (if we have any) or make assessments about the money we would require to achieve our goal. If we are looking to reach out to a certain number of customers, CAC can be used. If we are looking to expand into new geographies, stats from the existing setup can be useful. For a new startup, estimates will have to be arrived at.

Estimated Burn – Once we are able to scale towards our goal, we need to assess how much money will get burnt to sustain that growth along the way. Calculating burn accurately is crucial as a business cannot function without working capital.

Investment Required = Growth Money Required + Estimated Burn