Finance - Sources and Costs

When establishing an SME, it is critical that an owner has forecasted the financial requirements for the business to be successful. 

Accurate forecasting and market research should indicate the potential level of sales revenue of a business. 

There are two types of cost: establishment costs and operating costs.

• Establishment costs are the one-off expenditure on items required to get the business up an running (including premises, machinery, HR costs, legal costs). See Balance Sheet Assets.

• Operating costs are the ongoing expenses that are required to keep the business operating on a daily basis (including rent, wages, supply purchases, electricity). Revenue levels must be greater than operating costs to be profitable - see Income Statement

A business owner has two main options in financing the establishment of an SME: 

• owner’s equity (the owner’s personal wealth invested into the business) or 

• debt (loans from financial institutions - current and non-current liabilities).