Estimating capital requirements
When you are setting up the farm diversification business you will need to calculate the money needed to set up the business and the money needed to run it. The amount of initial capital investment required will depend on the business chosen. You may require money for:
- Essential alterations to buildings
- Necessary plant, machinery and equipment
- Adequate purchase of stock
- Vehicles as required
- Market research and promotion
- Legal fees (planning, building control, licences)
- Working capital
When working out your working capital requirements you will need to estimate your running costs and anticipated income. The difference between these is the amount you need to borrow to keep the business afloat.
In estimating the amount of working capital needed it is also vital to take an accurate overview to identify the peak periods when funds will be required. You should look at the picture over a long period, one to three years is the norm. If your income will come through invoicing rather than cash sales the business may need a longer time to be self-financing and require additional working capital to get over this period.
