Definition of Initial Capital and How to Calculate It

Rancakmedia.com – In starting a business, you need to know first about the meaning of initial capital, so that your business will grow rapidly in the future. For that, read the article below so that you understand it better.

Actually, not all businesses need capital. However, by having an initial investment in the form of capital, you can start a business according to what you are interested in or aspire to.

Starting with how to collect capital, ending with how to use initial capital effectively and efficiently, and then find out the target quantity of turnover that you must achieve each period.

In addition to the initial capital, there is also the final capital that is realized by the business world. Then, what is the difference between initial capital and final capital? As the name suggests, initial capital is the capital needed to start a business. Working capital, operating capital, and investment capital are all part of the start-up capital.

Definition of Initial Capital

Actually what is the meaning Capital beginning? Initial capital is a collection of funds used in starting a business, to run a business better you must know in advance about the various types of capital in the business sector.

All expenses necessary to provide the increased demand for goods and raw materials for business expansion are considered working capital. Working capital, investment capital, and operating capital are the three types of capital that make up start-up capital.

What is Initial Capital

Final capital is all the money or resources received after calculating the final result by adding the initial capital plus profits (if the business is profitable) or subtracting the initial capital from the amount of business losses (if the business suffers a loss).

All forms of capital mentioned above are included in the initial capital calculation. Startup capital, by definition, is the expenses associated with starting a business that will be used for a considerable period of time.

Why Need to Calculate Initial Capital?

It is very important to estimate start-up capital when developing a business strategy. If this plan is well structured, it can be included in a proposal that will help grow your business in the future.

Calculation of initial capital is very important for two reasons, in particular:

  1. Estimating the total amount of capital needed will be very helpful. From here, you can determine if you can raise capital internally or if you need to seek external capital (investors).
  2. Calculating profit potential. You can estimate the profit earned from a managed business by knowing the initial capital. In Indonesian, you only need to take income from capital.
  3. You can predict business prospects for the future once you know the net profit.

Why Need to Calculate Initial Capital

How to Calculate Initial Capital?

Calculating start-up capital can be done in four different ways. There are no rules governing the method of calculating initial capital. But the most plausible explanation is that it depends on how big the business is.

The bigger the business being run, the more has to be calculated and paid for. The formula then becomes more and more difficult. Let's discuss them one by one.

How to Calculate Initial Capital Method 1

It is quite easy to calculate the start-up capital using this method. suitable for small businesses and startup entrepreneurs. Calculation of initial capital using method 1 is as follows:

Initial Capital = Investment Capital + Working Capital + Operational Capital

Investment capital, working capital, and operating capital are the three different forms of capital considered.

How to Calculate Initial Capital Method 2

Initial capital is calculated using Method 2 together with the elements of final capital, profit, and priv. The total amount of funds in a business that is generated by adding the initial capital, profit or loss, and then subtracting the total prive is known as the final capital.

Profit is the amount of the business' net income. Prive is a term for business withdrawals made by business owners for personal or other purposes.

The initial capital calculation formula for method 2 is as follows:

Initial Capital = Final Capital – (Profit + Prive)

How to Calculate Initial Capital Method 3

Large business units and entrepreneurs should use this initial capital calculation method. Calculation of the initial capital for method 3 is as follows:

Initial Capital = Final Capital – (Revenue + Expenses + Taxes + Prive)

Expenses are a type of expense that businesses have taken advantage of.

Employee wages, vendor payments, water and electricity bills, office rent, and other expenses are some examples of expenses.

According to the law, a company is required to pay taxes to the state.

Taxes include Corporate Tax PPh 21 (tax on income from wages, salaries, honoraria, allowances and other payments), which is a type of tax.

How to Calculate Method Three

How to Calculate Initial Capital Method 4

This initial capital method is comparable to the approach, however, the terminology is different, using capital costs and operating costs. Capital is used to maintain business continuity through capital expenditures. For example, a machine that is continuously used

The initial capital needed for business operational needs is operational costs. For example, the cost of renting facilities, paying employees, using energy or telephone, and other costs.

The initial capital calculation formula for method 4 is as follows:

Initial Capital = Capital Expenses – Operational Expenses

Example of Calculation of Initial Business Capital

In the following example, we explain how to apply Method 1 to calculate the start-up capital of a business.

PT Dua Sejoli Jaya will launch a new business using the following capital information.

Capital for Investment

The following is an explanation of capital for business investment, namely:

  1. IDR 500,000 for a laptop
  2. IDR 750,000 for a printer
  3. A cell phone for IDR 3,000,000.
  4. IDR 500,000 for internet connection
  5. IDR 1,250,000 for a business license
  6. IDR 75,000,000 for a work car
  7. THE AMOUNT is: IDR 85,500,000

Working capital

Calculation of working capital, for example as follows:

  1. IDR 210,000 for printer ink.
  2. IDR 175,000 for paper
  3. IDR 385,000 is the total amount

Operational Capital

Below is the operational model, namely:

  1. IDR 8,000,000 is the total monthly employee salary.
  2. Room rent per month is IDR 1,000,000.
  3. Pay PLN IDR 500,000.
  4. Provision of PAM IDR 300,000.
  5. Car petrol IDR 500,000.
  6. IDR 300,000 was spent on food.
  7. Total IDR 10,600,000

With the above capital information, PT Dua Sejoli Jaya requires an initial capital of:

Initial Capital = Investment Capital + Working Capital + Operational Capital

IDR 85,500,000 + IDR 385.00 + IDR 10,600 = IDR 85,500,000 + IDR 385.00 + IDR 10,600

So, IDR 95,985,000 is the complete amount of initial capital for PT Duo Sejoli Jaya.

Type of Initial Capital

Type of Initial Capital

There are two categories of initial capital, namely:

Initial Investment

Such an investment should be planned by the business owner by making a budget and identifying the best solution. For some employees, renting a small office and working from home instead of a very large space may be more cost-effective.

Working capital

These are the funds a business needs to continue operating. In other words, you need to be able to handle direct expenses like paying suppliers and workers. Current assets are subtracted from Current Liabilities to calculate Working Capital.

Benefits of Calculating Initial Capital

Why is it better to calculate start-up capital before launching a business? Future business operations will be indirectly influenced by how you calculate the initial capital. Calculating the initial capital will provide at least two advantages for business people.

  1. Helping entrepreneurs to estimate the total capital needed to determine whether the capital can be fulfilled by themselves or additional capital (investors) is needed.
  2. Calculation of initial capital helps entrepreneurs to calculate the potential profit or loss that will be obtained by the business at this time. The secret is to reduce initial income and costs. In this way, business prospects can also be predicted.

FAQs

Here are some questions and answers regarding the meaning of initial capital, so that you find out the information, see below:

What are the Types of Working Capital?

There are two types of working capital, namely:

  1. Overall working capital
  2. Net working capital

Conclusion

Initial capital is the capital required to launch a business. Initial capital consists of working capital, operational capital, and investment capital.

That's all the information about the meaning of initial capital, I hope the information above can be helpful and useful for all of you.

Thus the article about the meaning of initial capital and how to calculate it, I hope the information above can be useful and helpful for all of you.

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