Planning for Entrepreneurs - I
Athwelage Sarath looks into costs
By Nilooka Dissanayake
Last week, I introduced you, dear reader, to Athwelage
Sarath, the imaginary entrepreneur. We will use Sarath's story to
learn all about the business planning process from now on.
been very busy. He has been trying to see what costs he will have
to incur for his business. His fiancée, Sumalee has been
busy too. She had visited a book exhibition and bought a book on
financial management for a small business called "Sulu Vyaparaye
been writing a long list of all possible costs he can think of.
He's not sure if he has covered them all. He is already getting
headaches just thinking of costs.
worry. Let us start at the beginning. First, let us break the costs
into the different types. Let's have your long list to see how it
can be done.
You are starting
a new business. So business registration fees and legal advice and
what you pay to a company for secretarial service to get your registration
documents prepared are called preliminary costs.
is capital expenditure. All the things in your list about purchasing
equipment and assets fall into this category.
Yes, the weighing
machine and the cash register go there. Also, the cost of refurbishing
the shop front can be in that category. Are you buying a vehicle?
That goes in there too.
about running costs?
the amount of money you need to run the business on a daily basis
is called the working capital. Working capital is needed to pay
for all the running costs until you can pay for them with your sales
Let us take
over from Sumalee now. If you have been trying to plan you business,
you will also be feeling just like Sarath - all tied up in knots
with costs. But, this is only the beginning.
We need to
separate our costs into more meaningful categories before we can
There are direct
costs and indirect costs. Direct costs are those costs attributable
directly to making and selling your product or service.
this means cost of purchasing the vegetables he plans to sell. The
transport costs involved in bringing vegetables to his shop are
also direct costs.
are all those not directly attributable to the product or service.
Imagine Sarath's business. Sarath has to pay his electricity bills
and wages. He has to purchase stationery and pay for insurance of
the building. He has to provide meals for hisand tea staf.
Let us not
get too deep into cost classifications. As entrepreneurs, we need
to build up a realistic list of all possible cost items. Once that
is ready, we can look at how we can finance those costs.
We must remember
at this point that costs can be financed in many ways. We will talk
about financing in another article. Before thinking of how much
money you have and whether you need to borrow and about financing,
you need to find out how much money you need to get your business
You must decide
what assets and services you need to get your business going, even
in a small way. You also need to get an idea about how much money
you will have to keep on spending until cashflows from sales will
come to your aid
I invite you
to list down the cost elements involved in starting up your dream
business and for running it for the first 12 months.
Try if possible
to break the costs into preliminaries, capital costs and into working
capital needs. Then, see whether you can calculate monthly or weekly
The above may
seem like a daunting task at first. It is not really. Just imagine
that your business is a reality and try to see how you will keep
it going. All possible types of problems and costs will come to
before you start issuing cheques, you will need to register the
company and open a bank account. Both require money.
So, on and
on the list will grow and you will have a better idea as to your
costs of running your business.
As for Sarath,
it has been several years since he has been in the vegetable trade.
So, we recommend that he goes to visit Manning market and also the
Dambulla vegetable market.
It may not
be a bad idea for him to visit a few districts and to meet farmers,
transporters, vegetable vendors and middlemen.
That way, he
can get a realistic idea of his market, buyers and suppliers as
well as his competition.
you need to go to get similar information for your business? Who
will you need to talk to? Think upon this as you get ready for the
financial plan for your dream business.
We invite you
to share with us any problems you encounter at this point. Please
send your questions and comments to firstname.lastname@example.org or call us
The writer is
the Managing Editor of Athwela Vyaparika Sangarawa (Athwela Business
Journal), the only Sinhala management monthly targeting the small
and medium sized business operators and its English version, Small
Business International to be launched next month.